As filed with the Securities and Exchange Commission on April 29, 1996
Registration No. 33-71980
File No. 811-8164
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 7 X
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 9 X
DUFF & PHELPS MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
370 Seventeenth Street
Suite 2700
Denver, Colorado 80202
Registrant's Telephone Number: (303) 623-2577
Calvin J. Pedersen
Duff & Phelps Investment Management Co.
55 East Monroe Street
Chicago, Illinois 60603
(Name and Address of Agent for Service)
Copies to:
David L. Skelding, Esq. Thomas A. Hale, Esq.
Lord, Bissell & Brook Skadden, Arps, Slate,
115 South LaSalle Street Meagher & Flom
Chicago, Illinois 60603 333 West Wacker Drive
Chicago, Illinois 60606
It is proposed that this filing will become effective:
x immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
The Registrant has registered an indefinite number
of its shares under the Securities Act of 1933 pursuant
to Rule 24f-2 under the Investment Company Act of 1940
and intends to file its Form 24f-2 for the fiscal year
ending December 31, 1996 on or about March 1, 1997.
EXPLANATORY NOTE
The purpose of this Post-Effective Amendment No.7
to the Registration Statement on Form N-1A for Duff &
Phelps Mutual Funds (the "Registrant") is the annual
update as it relates to Duff & Phelps Enhanced Reserves
Fund, one of the four series of the Registrant.
With respect to Duff & Phelps High Yield Fund, Duff
& Phelps Opportunity Income Fund and Duff & Phelps
International Equity Fund, the Prospectuses and
Statements of Additional Information for each of these
other three series of the Registrant were included as
part of Post-Effective Amendment No. 4 to the
Registrant's Registration Statement, filed on July 28,
1995, and are incorporated herein by reference in their
entirety and no changes to such Prospectuses or
Statements of Additional Information are effected by this
Post-Effective Amendment No. 7. At this time, the
Registrant has not commenced operations and does not
offer shares of these other three series.
This Registration Statement is organized as follows:
* Facing Page
* Explanatory Note
* Cross Reference Sheet with respect to Duff &
Phelps Enhanced Reserves Fund
* Part C Information
* Exhibits
DUFF & PHELPS MUTUAL FUNDS
Duff & Phelps Enhanced Reserves Fund
Cross Reference Sheet
PART A Information Required in the Prospectus
Form N-1A Item Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Financial Financial Highlights and
Highlights Fund's Operations --
Fund's Performance
4. General Description Cover Page, Fund's
of Registrant Operations -- The Fund's
Investment Objective,
Fund's Operations -- How
the Fund Seeks Its
Investment Objective,
Other Information and
Prospectus Appendix A --
Information on Investment
Policies
5. Management of the Expense Summary, Fund's
Fund Operations --
Distributions and Taxes
and Management of the Fund
5A. Management's Financial Highlights and
Discussion of Fund Fund's Operations --
Performance Fund's Performance
6. Capital Stock and Fund's Operations --
Other Distributions and Taxes,
Securities How to Invest in the Fund,
How to Redeem Shares,
Other Information and
Inquiries
7. Purchase of Expense Summary and How to
Securities Being Invest in the Fund
Offered
8. Redemption or Expense Summary and How to
Repurchase Redeem Shares
9. Pending Legal Not Applicable
Proceedings
PART B Information Required in the Statement of
Additional Information
Form N-1A Item SAI Caption
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information The Trust and the Fund
and History
13. Investment Investment Objective and
Objective and Policies
Policies
14. Management of the Management of the Fund
Fund
15. Control Persons and Management of the Fund
Principal Holders
of Securities
16. Investment Advisory Management of the Fund;
and Other Services Expenses; Auditors and
Financial Statements; see
also, Management of the
Fund in the Prospectus
17. Brokerage Investment Objective and
Allocation Policies -- Portfolio
Transactions
18. Capital Stock and Additional Purchase and
Other Securities Redemption Information;
Description of Shares
19. Purchase, Net Asset Value;
Redemption and Additional Purchase and
Pricing of Redemption Information;
Securities Being Description of Shares
Offered
20. Tax Status Tax Status
21. Underwriters Additional Purchase and
Redemption Information;
Management of the Fund;
see also, How to Invest in
the Fund in the Prospectus
22. Calculation of Additional Information on
Performance Data Performance Calculations
23. Financial Independent Auditors'
Statements Report; Financial
Statements; Notes to
Financial Statements
PART C
Information required to be included in Part C is set
forth under the appropriate Item, so numbered, in Part C
of the Registration Statement.
DUFF & PHELPS April 29, 1996
MUTUAL FUNDS
370 Seventeenth Street, Suite 2700
Denver, Colorado 80202
For additional information,
Call 1-800-500-DUFF(3833)
ENHANCED RESERVES FUND
DUFF & PHELPS ENHANCED RESERVES FUND (the "Fund") is a
diversified, open-end mutual fund. The Fund's investment
objective is to seek to provide a high level of current income
consistent with preservation of capital. The Fund seeks to
achieve its objective primarily by investing in U.S. government
securities and high grade corporate debt obligations. In normal
market conditions, the duration of the Fund's portfolio will be
approximately one year. The Fund, which is not a money market
fund, is designed for investors who seek a higher yield than a
money market fund and less fluctuation in net asset value than an
intermediate-term or long-term bond fund. The net asset value
and yield of the Fund will fluctuate depending on market
conditions and other factors. There can be no assurance that the
Fund's investment objective will be achieved.
The Fund's investment adviser is Duff & Phelps Investment
Management Co. (the "Investment Adviser"). Shares of the Fund
are sold through the Fund's distributor, ALPS Mutual Funds
Services, Inc. ("ALPS"), and are available exclusively for
institutional investors. The minimum initial investment in the
Fund is $10,000.
This Prospectus sets forth concisely information that you
should consider before investing. Please read it and keep it for
future reference. The address of the Fund is 370 Seventeenth
Street, Suite 2700, Denver, Colorado 80202, and its telephone
number is 1-800-500-3833.
Additional information about the Fund, contained in a
Statement of Additional Information, has been filed with the
Securities and Exchange Commission ("SEC") and is available upon
request without charge by calling 1-800-500-3833 or writing to
the Fund at the address above. The Statement of Additional
Information bears the same date as this Prospectus and is
incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
EXPENSE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . 3
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . 5
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FUND OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 6
The Fund's Investment Objective . . . . . . . . . . . . 6
How the Fund Seeks Its Investment Objective . . . . . . 6
Distributions and Taxes . . . . . . . . . . . . . . . . 8
Fund Performance . . . . . . . . . . . . . . . . . . . . 8
HOW TO INVEST IN THE FUND . . . . . . . . . . . . . . . . . . 9
How to Purchase Shares . . . . . . . . . . . . . . . . . 9
Statements and Other Purchase Information . . . . . . 10
Net Asset Value . . . . . . . . . . . . . . . . . . . 10
Public Offering Price . . . . . . . . . . . . . . . . 10
HOW TO REDEEM SHARES . . . . . . . . . . . . . . . . . . . 11
Written Redemption . . . . . . . . . . . . . . . . . . 11
Telephone Redemption . . . . . . . . . . . . . . . . . 11
General Redemption Information . . . . . . . . . . . . 12
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . 12
Board of Trustees . . . . . . . . . . . . . . . . . . 12
Investment Adviser . . . . . . . . . . . . . . . . . . 12
Administrator and Bookkeeping and Pricing Agent . . . 13
Custodian and Sub-Transfer Agent . . . . . . . . . . . 14
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 14
INQUIRIES . . . . . . . . . . . . . . . . . . . . . . . . . 15
APPENDIX A - INFORMATION ON INVESTMENT POLICIES . . . . . . 16
EXPENSE SUMMARY
The summary below shows shareholder transaction expenses
imposed by the Fund and anticipated Fund operating expenses.
"Shareholder Transaction Expenses" are charges you pay when
buying or selling Fund shares. Annual Fund Operating Expenses
are paid out of a Fund's assets and include fees for portfolio
management, Fund administration and other services.
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load on Purchases . . . . . . . . . . . . . . . None
Sales Load Imposed on ^ Reinvested Dividends . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . None
Redemption Fees . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees* . . . . . . . . . . . . . . . . . . 0.07%
Administration Fees . . . . . . . . . . . . . . . . . 0.15%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . None
Other Expenses . . . . . . . . . . . . . . . . . . . 0.12%
Total Fund Operating Expenses* . . . . . . . . 0.34%
* The Investment Adviser agreed to temporarily waive or
reimburse the Fund for a portion of its Management Fees
during the Fund's fiscal year ended December 31, 1995.
Absent the Investment Adviser's waiver/reimbursement of a
portion of its fee, Management Fees would have been .15%,
and Total Fund Operating Expenses would have been .42%.
The Investment Adviser anticipates that it will continue to
waive or reimburse the Fund for a portion of its "Management
Fees" during the Fund's fiscal year ending December 31, 1996
to the extent that "Total Fund Operating Expenses" do not
exceed 0.34%.
EXAMPLE:
Based on the Expense Summary above, you would pay the
following expenses on a $1,000 investment in the Fund, assuming
that you received a 5% annual return. As the Fund charges no
redemption fees, you would pay such expenses whether or not you
redeemed your shares at the end of each time period:
1 Year 3 Years 5 Years 10 Years
Duff & Phelps Enhanced $3 $11 $19 $43
Reserves Fund
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RETURN OR EXPENSES.
ACTUAL INVESTMENT RETURN AND EXPENSES MAY BE MORE OR LESS THAN
THOSE SHOWN.
OTHER INFORMATION:
This information is intended to help you understand the
expenses you would bear either directly or indirectly as a Fund
shareholder. If you own shares through certain Financial
Intermediaries (as described under the heading "HOW TO INVEST IN
THE FUND") you may pay fees to such Financial Intermediary in
connection with your account. These fees are in addition to the
expenses shown in the Expense Summary and Example. As the Fund's
assets increase, the fees waived or reimbursed by the Investment
Adviser are expected to decrease. Accordingly, it is unlikely
that future expenses as projected will remain consistent with
those determined based on the "Annual Fund Operating Expenses"
table. For more complete descriptions of shareholder transaction
expenses and the Fund's operating expenses, see "FUND
OPERATIONS," "HOW TO INVEST IN THE FUND" and "MANAGEMENT OF THE
FUND" in this Prospectus and the related notes included in the
Statement of Additional Information.
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one
share of beneficial interest of the Fund outstanding throughout
the periods indicated. The financial highlights have been
audited by Deloitte & Touche LLP, independent auditors, for the
periods indicated and their report thereon appears in the Fund's
Statement of Additional Information. This information should be
read in conjunction with the financial statements and related
notes thereto included in the Fund's Statement of Additional
Information.
For the For the
Year Period
Ended Ended
December December
31, 1995 31, 1994(1)
Net Asset Value - beginning of period $9.94 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.60 0.26
Net realized and unrealized gain or
(loss) on investments 0.16 (0.06)
Total income from investment
operations 0.76 0.20
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment income (0.60) (0.26)
Distributions from net realized gain on
income (0.02) -
Total dividends and distributions to
shareholders (0.62) (0.26)
Net asset value - end of period $10.08 $9.94
Total Return 7.80% 4.02%(2)
RATIO/SUPPLEMENTAL DATA
Net Assets, end of period (000) $136,380 $84,561
Ratio of expenses to average net assets 0.35% 0.34%
Ratio of net investment income to
average net assets 5.93% 5.24%(2)
Ratio of expenses to average net assets
without fee waivers 0.42% 0.42%(2)
Ratio of net investment income to
average net assets
without fee waivers
Portfolio turnover rate(3) 5.86% 5.17%(2)
190.37% 134.29%(2)
(1) Operations commenced on June 27, 1994.
(2) Annualized.
(3) A portfolio turnover rate is, in general, the
percentage computed by taking the lesser of purchases
or sales of portfolio securities (excluding securities
with a maturity date of one year or less at the time of
acquisition) for a period and dividing it by the
monthly average of the market value of such securities
during the period. Purchases and sales of investment
securities (excluding short-term securities) for the
year ended December 31, 1995 were $246,328,050 and
$170,785,915, respectively. Purchases and sales of
investment securities (excluding short-term securities)
for the year ended December 31, 1994 were $73,093,385
and $33,960,845, respectively.
See Notes to Financial Statements.
THE FUND
Duff & Phelps Enhanced Reserves Fund (the Fund ) is a
separate diversified portfolio of Duff & Phelps Mutual Funds (the
Trust ) which is an open-end management investment company that
was organized as a Massachusetts business trust on October 25,
1993.
The Board of Trustees of the Trust has given preliminary
approval to a proposed reorganization of the Fund into Phoenix
Duff & Phelps Institutional Enhanced Reserves Portfolio (the
"Acquiring Fund"), a fund advised by the Investment Adviser and
organized as a series of Phoenix Duff & Phelps Institutional
Mutual Funds. Pursuant to the reorganization, the Fund would
transfer its net assets to the Acquiring Fund in exchange for
shares of the Acquiring Fund, which shares would then be
distributed to shareholders of the Fund. The investment
objective of the Acquiring Fund is identical to that of the Fund
and the investment policies of the Acquiring Fund are
substantially similar to those of the Fund. The reorganization
is subject to the final approval of the Board of Trustees and the
approval of shareholders of the Fund. Further details will be
provided in a proxy/prospectus sent to shareholders at the
appropriate time. The Fund will continue its normal operation
prior to the reorganization.
FUND OPERATIONS
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a high level of
current income consistent with preservation of capital. The Fund
seeks to achieve its objective primarily by investing in a
diversified portfolio of U.S. government securities and high
grade corporate debt obligations which the Investment Adviser
believes does not involve undue risk to principal or income. The
Fund may purchase portfolio securities with maturities of greater
than one year. In normal market conditions, however, the
duration of the Fund's aggregate portfolio will be approximately
one year. The Fund, which is not a money market fund, is
designed for investors who seek a higher yield than a money
market fund and less fluctuation in net asset value than an
intermediate-term or long-term bond fund. The net asset value
and yield of the Fund will fluctuate depending on market
conditions and other factors. There can be no assurance that the
Fund's investment objective will be achieved. The Fund's
investment objective may be changed without the approval of a
majority of the holders of the Fund s outstanding shares.
HOW THE FUND SEEKS ITS INVESTMENT OBJECTIVE
The policy of the Fund, in normal market conditions, is to
invest at least 65% of the total value of its assets in U.S.
Government Obligations and Corporate Debt Obligations. U.S.
Government Obligations include Mortgage-Related Securities issued
by the U.S. Government or its agencies or instrumentalities.
Corporate Debt Obligations include Asset-Backed Securities of
private issuers. The balance of the Fund's assets may be
invested in Municipal Obligations, Mortgage-Related Securities
of private issuers, Bank Obligations, certain Money Market
Instruments, Repurchase Agreements, and (with respect to up to
20% of the Fund's total assets) in Dollar-Denominated Obligations
of Foreign Issuers. The investment characteristics of the
foregoing categories of securities, and the risks associated with
such securities, are described in detail in Appendix A to the
Prospectus. All debt obligations with maturities greater than
one year acquired by the Fund will be rated at the time of
purchase AAA, AA, or A by Standard & Poor's Ratings Group ("S&P")
or Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's")
or rated AAA, AA, or A by Duff & Phelps Credit Rating Co. ("D&P")
or similarly rated by any nationally recognized statistical
rating organization. Short-term debt obligations acquired by the
Fund will have equivalent ratings. In normal market conditions,
the Fund's dollar weighted average portfolio quality is expected
to be "AA" or better. See Appendix A to the Statement of
Additional Information for a description of applicable S&P,
Moody's, and D&P debt ratings.
The duration of the Fund's portfolio will vary from time to
time in light of current market and economic conditions, the
comparative yields on instruments with different maturities and
other factors. In normal market conditions the duration of the
Fund's portfolio will be approximately one year. In general, the
longer the duration of the Fund's portfolio, the more sensitive
the Fund's net asset value will be with respect to fluctuations
in market rates of interest. It is expected that debt
obligations acquired by the Fund will normally have maturities up
to 3 years, but from time to time the Fund may hold particular
securities with longer maturities.
In acquiring particular portfolio securities, the Investment
Adviser will consider, among other things, historical yield
relationships between U.S. Government Obligations and Corporate
Debt Obligations, intermarket yield relationships among various
industry sectors, current economic cycles and the attractiveness
and creditworthiness of particular issuers. For example, the
Investment Adviser draws upon several internal and third-party
databases to analyze historical returns of various classes of
debt obligations, with a particular view towards comparing the
relative returns and valuations between and among such classes of
obligations. Through such analysis, the Investment Adviser seeks
to define and identify favorable and unfavorable relative value
relationships among various classes of debt obligations. The
Investment Adviser adjusts the Fund's exposure to the various
classes of debt obligations based largely on its perception of
the most favorable markets. In this regard the percentage of
Fund assets invested in a particular class of debt obligations
will vary in accordance with the Investment Adviser's assessment
of the relative value of such instruments.
The Fund may invest in securities issued by other investment
companies within the limits prescribed by the Investment Company
Act of 1940, as amended (the "1940 Act"), which generally limit
the Fund's aggregate investment in such securities to no more
than 10% of the Fund's total assets. To the extent the Fund
invests in securities of other investment companies, the Fund
will bear its pro rata share of the fees and expenses of such
investment companies.
The value of the Fund's portfolio can be expected to fall
when interest rates rise and vice-versa, according to changes in
prevailing interest rates. Zero coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments) may be
subject to greater market fluctuations from changing interest
rates than debt obligations having comparable maturities that pay
interest currently.
In connection with the investment policies described above,
the Fund may also purchase and sell securities on a "when issued"
and "delayed delivery" basis and lend its portfolio securities in
certain circumstances, in each case subject to the limitations
set forth below. These investments entail risks.
The Fund may purchase and sell "when issued" and "delayed
delivery" securities. The Fund accrues no income on such
securities until the Fund actually takes delivery of such
securities. These transactions are subject to market
fluctuation; the value of the securities at delivery may be more
or less than their purchase price. The yields generally
available on comparable securities when delivery occurs may be
higher than yields on the securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller to
consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be
advantageous. The Fund will engage in when issued and delayed
delivery transactions for the purpose of acquiring securities
consistent with the Fund's investment objective and policies and
not for the purpose of investment leverage.
The Fund may lend its portfolio securities to banks or
broker-dealers, to a maximum of 25% of the assets of the Fund,
provided such loans are callable at any time and are continuously
secured by collateral consisting of cash or U.S. Government
Securities equal to at least 100% of the value of the securities
loaned, including accrued interest. The Fund will receive
amounts equal to earned income for having made the loan. The
Fund is the beneficial owner of the loaned securities so that any
gain or loss in the market price during the loan inures to the
Fund and its shareholders.
At times the Investment Adviser may judge that market
conditions make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At
such times, the Investment Adviser may use alternative strategies
primarily designed to reduce fluctuations in the value of the
Fund's assets. In implementing these temporary defensive
strategies, the Fund may, without limitation, invest in
high-quality, short-term securities. It is impossible to predict
whether, or for how long, the Fund will use any such defensive
strategies.
DISTRIBUTIONS AND TAXES
The Fund's present policy, which may be changed by the Board
of Trustees at any time, is that substantially all net investment
income normally is declared daily and paid monthly as a dividend.
Net investment income consists of all interest income, dividends
and other ordinary income earned by the Fund on its portfolio
assets and net short-term capital gains, less expenses of the
Fund. Net capital gains (which are the excess of net long-term
capital gains over net short-term capital gains) of the Fund, if
any, are distributed at least annually. Distributions cannot be
assured and the amount of each monthly distribution may vary.
All dividends and distributions are automatically reinvested
(without a sales charge) in additional shares of the Fund at its
net asset value per share (as determined on the payable date),
unless you notify the Transfer Agent in writing that you wish to
have dividends and capital gains distributions (or dividends
only) paid in cash. (These options to receive cash are not
available to participants through certain retirement plans.)
Reinvested dividends and distributions receive the same tax
treatment as those paid in cash.
In order to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended, the Fund intends
to distribute substantially all its net investment income and net
capital gains at least annually. Distributions of the Fund's net
investment income are taxable to shareholders as ordinary income
whether received in shares or in cash. Distributions of the
Fund's net capital gains, if any, are taxable to shareholders as
long-term capital gains regardless of the length of time the
shares of the Fund have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of the shares held by the
shareholders and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such shareholders
(assuming such shares are held as a capital asset). The Fund
will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
Redemption of shares of the Fund will be a taxable
transaction for federal income tax purposes. For additional
information concerning federal income taxes, please see Tax
Status in the Statement of Additional Information.
FUND PERFORMANCE
From time to time advertisements and other sales materials
for the Fund may include information concerning the historical
performance of the Fund. Any such information will include the
average total return of the Fund calculated on a compounded basis
for specified periods of time. Such advertisements and sales
material may also include a yield quotation as of a current
period. In each case, such total return and yield information,
if any, will be calculated pursuant to rules established by the
SEC and will be computed separately for each class of the Fund's
shares, when applicable. Such information may also include
performance rankings and similar information from independent
organizations such as Lipper Analytical Services, Inc., Business
Week, Forbes or other industry publications.
THE FOLLOWING TABLE IS INTENDED TO PROVIDE INVESTORS WITH A
COMPARISON OF SHORT-TERM MONEY MARKET RATES. THIS COMPARISON
SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE MONEY MARKET
RATES, NOR WHAT AN INVESTMENT IN THE FUND MAY EARN OR WHAT AN
INVESTOR S YIELD OR TOTAL RETURN MAY BE IN THE FUTURE. THE FUND
IS NOT A MONEY MARKET FUND. THESE COMPARISONS MAY BE USED IN
ADVERTISEMENTS AND IN INFORMATION FURNISHED TO PRESENT OR
PROSPECTIVE SHAREHOLDERS.
Comparison of Certificate of Deposit Rate and Money Market Rate
(Average of Calendar Year)
Money
Year C.D. Rate* Market Rate**
1982 . . . . . . . . . . . 12.57 . . . . . . . . . 11.70
1983 . . . . . . . . . . . 9.27 . . . . . . . . . 8.20
1984 . . . . . . . . . . . 10.68 . . . . . . . . . 9.58
1985 . . . . . . . . . . . 8.25 . . . . . . . . . 7.50
1986 . . . . . . . . . . . 6.51 . . . . . . . . . 6.17
1987 . . . . . . . . . . . 7.01 . . . . . . . . . 5.89
1988 . . . . . . . . . . . 7.91 . . . . . . . . . 6.77
1989 . . . . . . . . . . . 9.08 . . . . . . . . . 8.53
1990 . . . . . . . . . . . 8.17 . . . . . . . . . 7.82
1991 . . . . . . . . . . . 5.91 . . . . . . . . . 5.44
1992 . . . . . . . . . . . 3.76 . . . . . . . . . 3.36
1993 . . . . . . . . . . . 3.28 . . . . . . . . . 2.70
1994 . . . . . . . . . . 4.96 . . . . . . . . . 3.98
1995 . . . . . . . . . . . 5.98 . . . . . . . . . 5.50
* The Certificate of Deposit Rate represents the average
annual rate paid on large six-month CDs traded in the
secondary market. Source: Federal Reserve Bulletin.
** The Money Market Rate represents Donoghue's Money Fund
Averages for taxable money market funds.
Unlike certificates of deposit, an investment in the Fund is
not insured by the FDIC or any other governmental agency. In
addition, unlike money market funds, the Fund does not intend to
maintain a stable net asset value and may not be able to return
dollar-for-dollar the money invested.
Further information about the Fund's performance is
contained in the Fund's Annual Report and the Fund's Statement of
Additional Information, each of which may be obtained without
charge by calling 1-800-500-3833.
HOW TO INVEST IN THE FUND
Shares in the Fund are distributed on a continuous basis by
the Fund's distributor, ALPS. No separate compensation is paid
to ALPS for distribution services for the shares of the Trust.
ALPS has its principal office at 370 Seventeenth Street, Suite
2700, Denver, Colorado 80202, and may be reached at
1-800-500-3833. The Fund reserves the right to suspend or
terminate the continuous offering at any time and without prior
notice.
HOW TO PURCHASE SHARES
Shares of the Fund offered by this Prospectus are available
exclusively for institutional investors, which term generally
includes any bank, savings institution, trust company, insurance
company, investment company, pension or profit-sharing trust,
qualified institutional buyer (as defined in Rule 144A under the
Securities Act of 1933) or other financial institution or
institutional buyer to whom the sale of shares of the Fund would
be exempt from registration under applicable state securities
laws. From time to time shares of the Fund may be registered
under the securities laws of various states, as required. The
minimum initial investment in the Fund is $10,000.
Once an account has been established, shares may be
purchased by telephoning the Fund's Sub-Transfer Agent directly
at 1-800-500-3833. You may pay for shares in the form of cash,
check, money order or wire transfer. If you choose to purchase
shares by check, please mail your check to the Fund's
sub-transfer agent: Duff & Phelps Mutual Funds, c/o State Street
Bank and Trust Company (the Sub-Transfer Agent ), P.O. Box 8330,
Boston, Massachusetts 02266-8330. Orders for shares are subject
to verifying the purchaser s qualification as an institutional
investor to purchase such shares before the order is accepted.
If you are a qualifying institutional customer of a broker-dealer
or other financial institution (each a "Financial Intermediary")
you may purchase shares through procedures established by such
Financial Intermediary.
If you purchase shares through a Financial Intermediary, the
Financial Intermediary is responsible for transmitting your
purchase orders and for delivering required funds to the
Sub-Transfer Agent on a timely basis. The Fund may if instructed
record ownership of your shares on the Fund's books in the name
of the Financial Intermediary, and the Fund will send
confirmations of share purchases and redemptions to the Financial
Intermediary. The Financial Intermediary will record your
beneficial ownership of the shares on its records, and reflect
purchase and redemption transactions in account statements it
provides to you.
Purchase orders must be sent to the Sub-Transfer Agent. Any
purchase orders received by the Transfer Agent will be forwarded
to the Sub-Transfer Agent for next business day delivery and will
receive the price as calculated the day of receipt by the
Sub-Transfer Agent. If the Sub-Transfer Agent receives a
purchase order for shares by the close of regular trading
(currently 4:00 p.m. Eastern Time) on the New York Stock Exchange
(the Exchange ), the purchase price for the shares will be
determined as of the close of regular trading on that day. If
the Sub-Transfer Agent receives an order for the purchase of
shares after the close of regular trading on the Exchange, the
purchase price for the shares will be determined as of the close
of regular trading on the Exchange on the next business day. All
purchase orders must be made in same-day funds. Please call the
Transfer Agent for information on making wire payments.
STATEMENTS AND OTHER PURCHASE INFORMATION
The Fund or your Financial Intermediary will send you a
statement of your account after every transaction that affects
your share balance or your account registration. A statement of
tax information will be mailed to you by January 31 of each year,
and also will be filed with the Internal Revenue Service. At
least twice a year, you will receive financial statements in the
form of Annual and Semi-Annual Reports of the Fund.
The Fund will not issue you a certificate for shares unless
you specifically request one in writing.
The Fund reserves the right to reject any purchase order.
NET ASSET VALUE
Net asset value per share of the Fund is calculated by
adding the value of all securities and other assets, subtracting
the liabilities and dividing the result by the aggregate number
of outstanding shares. Net asset value generally is determined
as of the close of regular trading on the Exchange, currently
4:00 p.m. Eastern Time, on each weekday that the Exchange is
open.
The Fund's investments are valued at market value or, where
market quotations are not readily available, at fair value as
determined in good faith by or under the direction of the Board
of Trustees. Debt securities with maturities of sixty days or
less are valued at amortized cost, unless the Board of Trustees
determines that this does not constitute fair value. For further
information about valuing Fund investments, see the Statement of
Additional Information.
PUBLIC OFFERING PRICE
Shares are purchased at their net asset value per share.
HOW TO REDEEM SHARES
You may redeem shares in accordance with the procedures
described under "Written Redemption" or "Telephone Redemption."
If you beneficially own shares through an account at a Financial
Intermediary, you may redeem your shares in accordance with the
rules governing such account. The Financial Intermediary is
responsible for transmitting redemption orders to the
Sub-Transfer Agent and crediting your account with the redemption
proceeds on a timely basis.
WRITTEN REDEMPTION
You may redeem shares by written request to the Fund's
Sub-Transfer Agent: Duff & Phelps Mutual Funds, c/o State Street
Bank and Trust Company, P.O. Box 8330, Boston, Massachusetts
02266-8330. You must submit with your redemption request any
share certificates representing shares of the Fund being
redeemed, endorsed for transfer.
You must sign a redemption request. (Joint owners must
co-sign.) Your written redemption request must:
state the number of shares to be redeemed;
identify your shareholder account number; and
provide your tax identification number.
Each signature must be guaranteed by either a bank that is a
member of the FDIC, a trust company or a member firm of a
national securities exchange or other eligible guarantor
institution. The Sub-Transfer Agent will not accept guarantees
from notaries public. Guarantees must be signed by an authorized
person at the guarantor institution, and the words Signature
Guaranteed must appear with the signature. You must also obtain
a signature guarantee for signatures on endorsed certificates
submitted for redemption. The Fund may require additional
documents for redemptions made by Financial Intermediaries,
corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received
until the Sub-Transfer Agent receives all required documents in
proper form.
TELEPHONE REDEMPTION
You may redeem shares of the Fund by telephone, unless you
hold your shares through certain retirement plans or unless you
hold shares in certificate form. Shares may be redeemed by
telephoning the Sub-Transfer Agent at 1-800-500-3833 and giving
the account name, account number, name of Fund and amount of
redemption. Proceeds of redemptions may be wired or mailed
directly to your account at a commercial bank within the United
States or mailed to you at your address on the Fund s books.
Only redemptions of $10,000 or more will be executed by
telephone, and may be subject to limits as to frequency and
overall amount as noted on the Account Application.
In order to arrange for telephone redemptions after you have
opened your account, or to change the bank, account or address
designated to receive redemption proceeds, send a written request
to the Sub-Transfer Agent at the address listed under Written
Redemption. The request must be signed by you and each other
owner of your account (for a joint account), with the signatures
guaranteed as described above. The Trust may require further
documentation from holders of shares, Financial Intermediaries,
corporations, executors, administrators, trustees and guardians.
The Trust may modify or terminate procedures for redeeming shares
by telephone.
During periods of substantial economic or market change,
telephone redemptions may be difficult to complete. If you are
unable to contact the Transfer Agent/Sub-Transfer Agent by
telephone, you may redeem your shares by mail as described above
under Written Redemption.
By electing the telephone redemption option, you may be
giving up a measure of security which you might have had if you
were to redeem in writing. The Transfer Agent/Sub-Transfer Agent
will employ reasonable procedures, approved by the Fund, to
confirm that instructions communicated by telephone are genuine,
such as recording instructions, providing written confirmation of
transactions or requiring a form of personal identification prior
to acting on instructions received by telephone. To the extent
the Transfer Agent/Sub-Transfer Agent does not employ reasonable
procedures, it and/or its service contractors may be liable for
any losses due to unauthorized or fraudulent instructions.
Neither the Trust, the Fund nor the Transfer Agent/Sub-Transfer
Agent will be liable for following instructions communicated by
telephone that are reasonably believed to be genuine.
Accordingly, you, as a result of this policy, may bear the risk
of fraudulent telephone redemption transactions.
GENERAL REDEMPTION INFORMATION
Redemption orders are processed at the net asset value per
share next determined after the Sub-Transfer Agent receives your
order and any requested supporting documents in proper form. The
value of the shares redeemed may be more or less than the cost of
such shares when purchased. The Trust ordinarily will pay for
redeemed shares by mail within seven days after the Sub-Transfer
Agent receives your order and supporting documents in proper form
(except as provided by the rules of the SEC). Where payment is
to be made by wire, the Trust normally will wire redemption
proceeds by the fifth business day after receipt of your
redemption order. However, if you purchased any of the shares to
be redeemed by check, the Trust may delay the payment of
redemption proceeds until the Sub-Transfer Agent is reasonably
satisfied that the check has been collected, which could take up
to 15 days from the purchase date.
If the Trust wires your redemption proceeds, the wire must
be paid to the same bank and account as designated on the Fund s
Account Application or in your written instructions to the
Sub-Transfer Agent. If your bank is not a member of the Federal
Reserve System, your redemption proceeds will be wired to a
correspondent bank. Immediate notification by the correspondent
bank to your bank will be necessary to avoid a delay in crediting
the funds to your bank account.
There is no charge for share redemptions. However,
Financial Intermediaries may charge a fee for providing
administrative services in connection with transactions in Fund
shares. The Fund may redeem involuntarily an account that has a
balance of less than $5,000 if the shareholder does not increase
the amount of the account to at least $5,000 upon 60 days
notice. If you agree with a particular Financial Intermediary to
maintain a minimum balance at the Financial Intermediary (for
example, a margin account), and the balance in your account falls
below that minimum, you may be obliged by the Financial
Intermediary to redeem all or part of your shares in the Fund to
the extent necessary to maintain the required minimum balance.
Please direct questions concerning the proper form for
redemption requests to the Transfer Agent at 1-800-500-3833.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the
direction of the Trust's Board of Trustees. The Statement of
Additional Information contains information on the Board of
Trustees.
INVESTMENT ADVISER
Duff & Phelps Investment Management Co. serves as the
investment adviser to the Fund. The Investment Adviser has its
principal offices at 55 East Monroe Street, Chicago, Illinois
60603. The Investment Adviser is a wholly-owned subsidiary of
Phoenix Duff & Phelps Corporation (formerly known as Duff &
Phelps Corporation). Phoenix Duff & Phelps Corporation is an
indirect majority-owned subsidiary of Phoenix Home Life Mutual
Insurance Company, a New York mutual life insurance company.
The Investment Adviser makes investment decisions for the
Fund and places orders for all purchases and sales of the Fund s
portfolio securities. The Investment Adviser is entitled to a
fee, calculated daily and payable monthly, at the annual rate of
.15% of the Fund s average daily net assets. The Investment
Adviser may from time to time voluntarily waive all or a portion
of its advisory fee; however, the Investment Adviser may modify
or discontinue this practice at any time, in its sole discretion.
The Investment Advisory Agreement includes the conditions under
which the Trust and the Fund may use Duff & Phelps in their
name, including the continued employment of the Investment
Adviser, or an affiliate or successor thereof, as investment
adviser to the Fund.
Under the terms of a service agreement among the Investment
Adviser, Phoenix Duff & Phelps Corporation, and the Trust (the
"Service Agreement"), Phoenix Duff & Phelps Corporation makes
available to the Investment Adviser the services, on a part-time
basis, of its employees and various facilities to enable the
Investment Adviser to perform certain of its obligations to the
Fund. However, the obligation of performance under the
Investment Advisory Agreement is solely that of the Investment
Adviser, for which Phoenix Duff & Phelps Corporation assumes no
responsibility, except as described in the preceding sentence.
The Investment Adviser reimburses Phoenix Duff & Phelps
Corporation for any costs, direct or indirect, as are fairly
attributable to the services performed and the facilities
provided by Phoenix Duff & Phelps Corporation under the Service
Agreement. The Investment Adviser compensates Phoenix Duff &
Phelps Corporation for such services out of its own assets and
the Trust does not compensate Phoenix Duff & Phelps Corporation
under the Service Agreement.
Robert J. Moore, Executive Vice President and Chief
Investment Officer of the Fund, is an Executive Vice President
and head of Fixed Income with the Investment Adviser in Chicago,
Illinois. Mr. Moore has been the Fund's Chief Investment
Officer since the Fund's commencement of investment operations.
Mr. Moore is Chairman of the Fixed Income Strategy Committee of
the Investment Adviser and is the chief investment officer and
senior portfolio manager for separately managed enhanced cash
management portfolios of the Investment Adviser. Prior to
joining the Investment Adviser, Mr. Moore was a Principal and
Portfolio Manager with Harris Investment Management and was a
lead portfolio manager at Ford Motor Company. Mr. Moore holds a
B.B.A. in Finance from The University of Texas, Austin and a
Masters of Management from the J. L. Kellogg Graduate School of
Business, Northwestern University.
Marvin E. Flewellen, Portfolio Manager, is a Senior Vice
President and a Fixed Income Portfolio Manager with the
Investment Adviser in Chicago, Illinois and is responsible for
the day-to-day management of the Fund. Mr. Flewellen has been
the Fund's Portfolio Manager since the Fund's commencement of
investment operations. Mr. Flewellen is also the portfolio
manager for separately managed enhanced cash management
portfolios of the Investment Adviser. Prior to joining the
Investment Adviser, Mr. Flewellen was a Second Vice President and
portfolio manager with Northern Trust Bank. Mr. Flewellen holds
a B.A. in computational mathematics from DePauw University,
Greencastle, Indiana and a Masters of Business Administration
with an emphasis in Financial Management from the University of
Chicago.
In allocating purchase and sale orders for the Fund's
portfolio securities, the Investment Adviser may consider the
amount of Fund shares sold by broker-dealers and other financial
institutions. The Investment Adviser will not allocate orders on
that basis unless it believes that the broker-dealer s or
institution s execution capability and the amount of the
commission to be paid are comparable to what they would be with
other qualified firms.
ADMINISTRATOR AND BOOKKEEPING AND PRICING AGENT
ALPS serves as the Fund's administrator. As administrator,
ALPS has agreed to, among other things: assist in maintaining the
Fund's office; furnish the Fund with clerical and certain other
services required by it; compile data for and prepare notices and
semi-annual reports to the SEC; prepare filings with state
securities commissions; coordinate Federal and state tax returns;
perform fund accounting; monitor the Fund's expense accruals;
monitor compliance with the Fund's investment policies and
limitations; and generally assist in the Fund's operations. In
consideration of services rendered pursuant to this agreement
(the Administration Agreement ), the Trust pays ALPS a fee,
computed daily and payable monthly, at the annual rate of .15% of
the first $1 billion average daily net assets of the Fund. The
next $500 million are at a rate of .125% of the average daily net
assets and .10% of the average daily net assets in excess of $1.5
billion.
ALPS also serves as the Fund's Bookkeeping and Pricing
Agent. It has agreed to maintain the financial accounts and
records of the Fund and to compute the net asset value and
certain other financial information relating to the Fund.
CUSTODIAN AND SUB-TRANSFER AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts 02015, serves as Sub-Transfer Agent and custodian
for the Fund.
OTHER INFORMATION
The Trust was organized under Massachusetts law as a
business trust pursuant to a Declaration of Trust dated October
25, 1993. The Declaration of Trust permits the Trust to offer
separate portfolios of shares. All consideration received by the
Trust for shares of any portfolio and all assets of such
portfolio belong to that portfolio and would be subject to
liabilities related thereto.
The Trust pays its expenses, including fees of its service
providers, legal expenses, certain costs of registering shares
under Federal and state securities laws, pricing, insurance
expenses, litigation and other extraordinary expenses, brokerage
costs, interest charges, taxes and organization expenses.
The Investment Adviser and ALPS have an arrangement whereby
the Investment Adviser will reimburse ALPS for all expenses
incurred by ALPS on behalf of the Fund until the Fund's net
assets equal $500 million. The Trust will reimburse the
Investment Adviser for all organizational expenses paid by the
Investment Adviser, which expenses will be amortized over sixty
months.
The Trust's Declaration of Trust authorizes the Board of
Trustees of the Trust to classify or reclassify any unissued
shares of the Trust into one or more portfolios of shares and to
issue separate classes of shares in the same portfolio. The
Board of Trustees has authorized the issuance of an unlimited
number of shares representing interests in the Fund.
You are entitled to one vote for each full share you hold
and proportionate fractional votes for fractional shares you
hold. In the event that the Board of Trustees designates more
than one portfolio of shares, you will vote your Trust shares
together with all other shareholders of the Trust and not by
portfolio, except where otherwise required by law or when the
Board of Trustees determines that the matter to be voted on
affects only the interests of the shareholders of a particular
portfolio. The Trust does not presently intend to hold meetings
of shareholders except as required by the 1940 Act or other
applicable law.
Under Massachusetts law, shareholders of a business trust
may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, the Trust's
Declaration of Trust provides that shareholders shall not be
subject to any personal liability in connection with the assets
of the Trust for the acts or obligations of the Trust, and that
every note, bond, contract, order or other undertaking made by
the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the
trust property of any shareholder held personally liable solely
by reason of his or her being or having been a shareholder and
not because of his or her acts or omissions or some other reason.
The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust, and shall
satisfy any judgment thereon. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be
unable to meet its obligations.
The Declaration of Trust states further that no Trustee,
officer or agent of the Trust shall be personally liable for or
on account of any contract, debt, tort, claim, damage, judgment
or decree arising out of or connected with the administration or
preservation of the trust property or the conduct of any business
of the Trust; nor shall any Trustee be personally liable to any
person for any action or failure to act except by reason of his
own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as Trustee. The Declaration of Trust
also provides that all persons having any claim against the
Trustees or the Trust shall look solely to the trust property for
payment. With the exception stated, the Declaration of Trust
provides that a Trustee is entitled to be indemnified against all
liabilities and expense reasonably incurred by him in connection
with the defense or disposition of any proceeding in which he may
be involved or with which he may be threatened by reason of his
being or having been Trustee, and that the Trustees will
indemnify representatives and employees of the Trust to the same
extent that Trustees are entitled to indemnification.
INQUIRIES
Please write or call the Trust at the address or telephone
number listed on the cover of this Prospectus with any inquiries
you may have regarding the Fund and investment portfolios of the
Trust that are not offered by the Prospectus.
APPENDIX A - INFORMATION ON INVESTMENT POLICIES
U.S. GOVERNMENT OBLIGATIONS
The Fund may invest in securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities ( U.S.
Government Obligations ). Examples of the types of U.S.
Government obligations that may be held by the Fund include, in
addition to U.S. Treasury Bonds, Notes and Bills, the obligations
of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small
Business Administration, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives,
Federal Intermediate Credit Banks and Maritime Administration.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Small Business
Administration, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide
financial support to U.S. Government-sponsored instrumentalities
if it is not obligated to do so by law. U.S. Government
Obligations also include Mortgage-Related Securities issued by
the U.S. Government or its agencies or instrumentalities.
CORPORATE DEBT OBLIGATIONS
The Fund may invest in a broad range of debt obligations of
corporate entities ( Corporate Debt Obligations ) such as fixed
and variable rate bonds, zero coupon bonds, debentures,
obligations convertible into common stock and notes. Corporate
Debt Obligations also include Asset-Backed Securities of private
issuers (as discussed below). These securities typically provide
for periodic payments of interest, which may be adjustable or
fixed rate with payment of principal upon maturity and are
generally not secured by assets of the issuer or otherwise
guaranteed. Adjustable rate Corporate Income Securities may have
interest rate caps and floors. These securities may also be zero
coupon obligations, which do not provide for periodic interest
payments. Certain Corporate Debt Obligations in which the Fund
may invest are subject to sinking fund schedules that provide for
the periodic repayment of all or a portion of an issue's
principal. Sinking fund Corporate Debt Obligations may contain
call provisions that allow an issuer to redeem the security when
principal is reduced to a certain percentage of the overall
issue.
In acquiring particular Corporate Debt Obligations for the
Fund, the Investment Adviser will consider, among other things,
historical yield relationships between U.S. Government
Obligations and Corporate Debt Obligations, intermarket yield
relationships among various industry sectors, current economic
cycles and the attractiveness and creditworthiness of particular
issuers. Depending upon the Investment Adviser's analysis of
these and other factors, the Fund's holdings in issues in
particular industry sectors may be overweighted when compared to
the relative industry weightings in the Lehman Brothers
Intermediate Term Index or other recognized indices. Although
the Fund has no restrictions as to the minimum or maximum
maturity of any individual security held by it, the Corporate
Debt Obligation component of the Fund will normally have an
average weighted portfolio maturity of less than 3 years. The
value of the Corporate Debt Obligation component of the Fund can
be expected to vary inversely to changes in prevailing interest
rates.
Zero coupon obligations will experience greater price
volatility than obligations with similar investment
characteristics which require periodic interest payments.
Additionally, while zero coupon obligations provide the Fund with
imputed taxable current income, they do not provide the Fund with
cash flow to distribute this income to shareholders.
Consequently, the Fund may have to sell portfolio securities in
order to generate cash to make required distributions to its
shareholders. Such sales may occur when they would be
disadvantageous to the Fund or when the Fund may not have
otherwise chosen to dispose of these securities.
MORTGAGE-RELATED SECURITIES
The Fund may invest in securities that directly or
indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property
("Mortgage-Related Securities"). Mortgage-Related Securities
that are issued or guaranteed by U.S. government agencies or
instrumentalities such as the Government National Mortgage
Association, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation, are considered by the
Fund to be U.S. Government Obligations. Mortgage-Related
Securities may also be issued by private issuers such as
commercial banks, savings and loan institutions, mortgage banks
and private mortgage insurance companies, and similar foreign
entities. The Mortgage-Related Securities in which the Fund may
invest include those with fixed, floating and variable interest
rates and those with interest rates that change based on
multiples of changes in interest rates, as well as stripped
Mortgage-Related Securities which are derivative multi-class
mortgage securities. Stripped Mortgage-Related Securities
usually are structured with two classes that receive different
proportions of interest and principal distributions on a pool of
Mortgage-Related Securities or whole loans. A common type of
stripped Mortgage-Related Security will have one class receiving
some of the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive
all of the principal (the principal-only or "PO" class).
Although certain Mortgage-Related Securities are guaranteed by a
third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured. If the
Fund purchases a Mortgage-Related Security at a premium, all or
part of the premium may be lost if there is a decline in the
market value of the security, whether resulting from changes in
interest rates or prepayments in the underlying mortgage
collateral. As with other interest-bearing securities, the
prices of certain Mortgage-Related Securities are inversely
affected by changes in interest rates, while other, which the
Fund may purchase, may be structured so that their interest rates
will fluctuate inversely (and thus their price will increase as
interest rates rise and decrease as interest rates fall) in
response to changes in interest rates. Though the value of a
Mortgage-Related Security may decline when interest rates rise,
the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security
are more likely to prepay. For this and other reasons, a
Mortgage-Related Security's stated maturity may be shortened by
unscheduled prepayments on the underlying mortgages, and,
therefore, it is not possible to predict accurately the
security's return to the Fund. Moreover, with respect to
stripped Mortgage-Related Securities, if the underlying mortgage
securities experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial
investment in these securities even if the securities are rated
in the highest rating category by a nationally recognized
statistical rating organization. In addition, regular payments
received in respect of Mortgage-Related Securities include both
interest and principal. No assurance can be given as to the
return the Fund will receive when these amounts are reinvested.
The Fund also may invest in collateralized mortgage obligations
structured on pools of mortgage pass-through certificates or
mortgage loans.
ASSET-BACKED SECURITIES
The Fund may invest in securities issued by corporate and
other special purpose entities in which the source of income
payments on the securities is a dedicated pool of assets
("Asset-Backed Securities"). The securitization techniques used
for Asset-Backed Securities are similar to those used for
Mortgage-Related Securities. The collateral for these securities
has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile
home loans, recreational vehicle loans and hospital and other
account receivables. The Fund may invest in these and other
types of Asset-Backed Securities that may be developed in the
future.
BANK OBLIGATIONS
The Fund may purchase certificates of deposit, time
deposits, bankers acceptances and other short-term obligations
issued by domestic banks, foreign subsidiaries of domestic banks,
foreign branches of domestic banks, and domestic and foreign
branches of foreign banks, domestic savings and loan associations
and other banking institutions (collectively, Bank
Obligations ). With respect to such securities issued by foreign
branches of domestic banks, foreign subsidiaries of domestic
banks, and domestic and foreign branches of foreign banks (all of
which securities will be U.S. dollar-denominated), the Fund may
be subject to additional investment risks that are different in
some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. Such risks include
possible future political and economic developments, the possible
imposition of foreign withholding taxes on interest income
payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of
principal and interest on these securities and the possible
seizure or nationalization of foreign deposits. All investments
in Bank Obligations are limited to the obligations of financial
institutions having more than $1 billion in total assets at the
time of purchase, and investments by the Fund in the obligations
of foreign banks and foreign branches of U.S. banks will not
exceed 25% of the Fund's total assets at the time of purchase.
See "Dollar-Denominated Obligations of Foreign Issuers" below.
Certificates of deposit are negotiable certificates
evidencing the obligation of a bank to repay funds deposited with
it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated
interest rate. Time deposits which may be held by the Fund will
not benefit from insurance from the Bank Insurance Fund or the
Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation.
Bankers' acceptance are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and the
drawer to pay the face amount of the instrument upon maturity.
The other short-term obligations may include uninsured, direct
obligations bearing fixed, floating or variable interest rates.
DOLLAR-DENOMINATED OBLIGATIONS OF FOREIGN ISSUERS
The Fund may invest in debt obligations issued by foreign
corporations and by foreign governments and their political
subdivisions, which securities will be denominated, and pay
interest and principal, in U.S. dollars ("Dollar-Denominated
Obligations of Foreign Issuers"). Investment in such securities
involves certain risks, including those described below. Foreign
securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers
are less liquid and more volatile than securities of comparable
U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at
times, volatility of price can be greater than in the United
States. The issuers of some of these securities, such as foreign
bank obligations, may be subject to less stringent or different
regulations than are U.S. issuers. In addition, there may be
less publicly available information about a non-U.S. issuer, and
non-U.S. issuers generally are not subject to uniform accounting
and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers.
Because evidence of ownership of such securities usually is
held outside the United States, the Fund will be subject to
additional risks which include possible adverse political and
economic developments, possible seizure or nationalization of
foreign deposits and possible adoption of governmental
restrictions that might adversely affect the payment of principal
and interest on the foreign securities or might restrict the
payment of principal and interest to investors located outside
the country of the issuers, whether from currency blockage or
otherwise. Custodial expenses for a portfolio of non-U.S.
securities generally are higher than for a portfolio of U.S.
securities.
Furthermore, some of these securities may be subject to
brokerage taxes levied by foreign governments, which have the
effect of increasing the cost of such investment and reducing the
realized gain or increasing the realized loss on such securities
at the time of sale. Income received by the Fund from sources
within foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between certain
countries and the United States, however, may reduce or eliminate
such taxes. All such taxes paid by the Fund will reduce its net
income available for distribution to investors.
MUNICIPAL OBLIGATIONS
When conditions warrant, the Fund may invest in obligations
issued by or on behalf of state and local governmental issuers
("Municipal Obligations"), whether or not the income thereon is
exempt from the Federal income tax. The purchase of Municipal
Obligations may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the yield of such
securities, on a pre-tax basis, is comparable to that of
corporate or U.S. Government obligations. Dividends paid by the
Fund that are derived from interest on Municipal Obligations
would be taxable to the Fund's shareholders for Federal income
tax purposes.
MONEY MARKET INSTRUMENTS
The Fund may invest from time to time in "Money Market
Instruments," a term that includes, among other things, Bank
Obligations, commercial paper and corporate bonds with remaining
maturities of 397 days or less.
Commercial paper may include variable and floating rate
instruments. There is no percentage limitation on the amount of
assets which may be held uninvested by the Fund. Uninvested cash
or money market investments will normally not be significant in
the Fund's portfolio.
REPURCHASE AGREEMENTS
The Fund may agree to purchase portfolio securities subject
to the seller's agreement to repurchase them at a mutually agreed
upon date and price. The Fund will enter into such repurchase
agreements only with financial institutions that are deemed to be
creditworthy by the Investment Adviser, pursuant to guidelines
established by the Trust s Board of Trustees. During the term of
any repurchase agreement, the Investment Adviser will continue to
monitor the creditworthiness of the seller. The Fund will not
enter into repurchase agreements with the Investment Adviser or
its affiliates. Although the securities subject to repurchase
agreements may bear maturities exceeding thirteen months, the
Fund does not presently intend to enter into repurchase
agreements with deemed maturities in excess of seven days. If in
the future the Fund were to enter into repurchase agreements with
deemed maturities in excess of seven days, the Fund would do so
only if such investment, together with other illiquid securities,
did not exceed 15% of the value of the Fund s total assets.
The seller under a repurchase agreement will be required to
maintain the value of the securities which are subject to the
agreement and held by the Fund at not less than the repurchase
price. Default or bankruptcy of the seller would, however,
expose the Fund to possible delay in connection with the
disposition of the underlying securities or loss to the extent
that proceeds from a sale of the underlying securities were less
than the repurchase price under the agreement.
VARIABLE AND FLOATING RATE INSTRUMENTS
Debt Obligations purchased by the Fund may include variable
and floating rate demand instruments issued by corporations,
industrial development authorities and governmental entities.
Although variable and floating rate demand instruments are
frequently not rated by credit rating agencies, unrated
instruments purchased by the Fund will be determined to be of
comparable quality to rated instruments that may be purchased by
the Fund. While there may be no active secondary market with
respect to a particular variable or floating rate instrument
purchased by the Fund, the Fund may, from time to time as
specified in the instrument, demand payment in full of the
principal of the instrument or may resell the instrument to a
third party. The absence of such an active secondary market,
however, could make it difficult for the Fund to dispose of a
variable or floating rate demand instrument if the issuer
defaulted on its payment obligations or during periods that the
Fund is not entitled to exercise its demand rights, and the Fund
could, for these or other reasons, suffer a loss. Variable and
floating rate instruments with no active secondary market will be
included in the calculation of the Fund's illiquid assets.
RESTRICTED SECURITIES
The Fund will not knowingly invest more than 15% of the
value of its net assets in securities that are illiquid because
of restrictions on transferability or other reasons. Repurchase
agreements with deemed maturities in excess of seven days, time
deposits maturing in more than seven days and securities that are
not registered under the Securities Act of 1933 (unless such
securities may be purchased by institutional buyers under Rule
144A) generally are subject to this 15% limit (unless such
securities are variable amount master demand notes with
maturities of nine months or less or unless the Board determines
that a liquid trading market exists).
Rule 144A allows for a broader institutional trading market
for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a safe harbor from the
registration requirements of the Securities Act of 1933 for
resales of certain securities to qualified institutional buyers
(as defined in Rule 144A). The Investment Adviser believes that
the market for certain restricted securities such as
institutional commercial paper may expand further as a result of
Rule 144 and the development of automated systems for the
trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
The Investment Adviser monitors the liquidity of restricted
securities in the Fund's portfolio under the supervision of the
Board of Trustees. In reaching liquidity decisions, the
Investment Adviser will consider such factors as (a) the
frequency of trades and quotes for the security; (b) the number
of broker-dealers wishing to purchase or sell the security and
the number of other potential purchasers; (c) broker-dealer
undertakings to make a market in the security; and (d) the nature
of the security and nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
INVESTMENT ADVISER INDEPENDENT AUDITORS
Duff & Phelps Investment Deloitte & Touche LLP
Management Co. 555 Seventeenth Street, Suite 3600
55 East Monroe Street Denver, Colorado 80202-3942
Chicago, Illinois 60603
DISTRIBUTOR/ADMINISTRATOR CUSTODIAN AND SUB-TRANSFER AGENT
TRANSFER AGENT State Street Bank and Trust
ALPS Mutual Funds Services, Inc. Company
370 Seventeenth Street, P.O. Box 1713
Suite 2700 Boston, Massachusetts 02015
Denver, Colorado 80202
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher &
Flom
333 West Wacker Drive
Chicago, Illinois 60606
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY ITS DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
STATEMENT OF ADDITIONAL INFORMATION
for
DUFF & PHELPS ENHANCED RESERVES FUND
April 29, 1996
TABLE OF CONTENTS
Page
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . B- 1
THE TRUST AND THE FUND . . . . . . . . . . . . . . B- 2
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . B- 2
NET ASSET VALUE . . . . . . . . . . . . . . . . . . B-13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . B-14
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . B-14
TAX STATUS . . . . . . . . . . . . . . . . . . . . B-17
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . B-20
EXPENSES . . . . . . . . . . . . . . . . . . . . . B-27
AUDITORS . . . . . . . . . . . . . . . . . . . . . B-27
COUNSEL . . . . . . . . . . . . . . . . . . . . . . B-28
ADDITIONAL INFORMATION ON PERFORMANCE
CALCULATIONS . . . . . . . . . . . . . . . . . . B-28
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . B-32
APPENDIX A . . . . . . . . . . . . . . . . . . . . A- 1
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . F- 1
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . F- 2
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . F- 9
<R/>
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the
Fund's Prospectus dated April 29, 1996 as the same is
supplemented or revised from time to time. This
Statement of Additional Information incorporates by
reference the entire Prospectus. Copies of the Fund's
Prospectus and financial statements may be obtained by
calling 1-800-500-3833 or by writing the Fund at 370
Seventeenth Street, Suite 2700, Denver, Colorado 80202.
Capitalized terms used but not defined herein have the
same meanings as in the Prospectus.
<R/>
THE TRUST AND THE FUND
Duff & Phelps Enhanced Reserves Fund (the "Fund") is a
diversified portfolio of Duff & Phelps Mutual Funds (the
"Trust"), an open-end management investment company organized as
a Massachusetts business trust on October 25, 1993.
The Trust is authorized to issue separate shares
representing interests in separate investment portfolios and,
subject to compliance with the Investment Company Act of 1940
(the "1940 Act"), to issue separate classes of shares in the same
portfolio.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek to provide a high
level of current income consistent with preservation of capital.
The following policies supplement the discussion of the Fund's
investment objective and policies as set forth in the Prospectus.
Portfolio Transactions
Duff & Phelps Investment Management Co. (the "Investment
Adviser") serves as investment adviser to the Fund.
Subject to the general supervision of the Trust's Board of
Trustees and the provisions of the Investment Advisory Agreement
relating to the Fund, the Investment Adviser is responsible for,
makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities.
The Investment Advisory Agreement for the Fund provides
that, in executing portfolio transactions and selecting brokers
or dealers, the Investment Adviser will seek the best overall
terms available. In assessing the best overall terms available
for any transaction, the Investment Adviser will consider factors
it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In addition, the
Investment Advisory Agreement authorizes the Investment Adviser
to cause the Fund to pay a broker-dealer which furnishes
brokerage and research services a higher commission than that
which might be charged by another broker-dealer for effecting the
same transaction, provided that it determines in good faith that
such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer,
viewed in terms of either that particular transaction or the
overall responsibilities of the Investment Adviser, as
applicable, to the Fund. Such brokerage and research services
might consist of reports and statistics of specific companies or
industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the
stock, bond and government securities markets and the economy.
Supplementary research information so received is in
addition to, and not in lieu of, services required to be
performed by the Investment Adviser and does not reduce the
advisory fees payable by the Fund. The Trustees will
periodically review the commissions paid by the Fund to consider
whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to
the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or
more other investment companies or other accounts for which
investment discretion is exercised. Conversely, the Fund may be
the primary beneficiary of the research or services received as a
result of portfolio transactions effected for such other account
or investment company.
The Fund may from time to time purchase securities issued by
the Trust's regular broker-dealers that derive more than 15% of
gross revenues from securities-related activities.
Portfolio securities will not be purchased from or sold to
(and savings deposits will not be made in and repurchase and
reverse repurchase agreements will not be entered into with) the
Investment Adviser, ALPS or any affiliated person (as such term
is defined in the 1940 Act) of any of them acting as principal,
except to the extent permitted by the Securities and Exchange
Commission. (However, the Investment Adviser is authorized to
allocate purchase and sale orders for portfolio securities to
broker-dealers and other financial institutions including, in the
case of agency transactions, institutions, if any, which are
affiliated with the Investment Adviser, to take into account the
sale of Fund shares if they believe that the quality of the
transaction and the amount of the commission are comparable to
what they would be with other qualified brokerage firms.) In
addition, the Fund will not purchase securities during the
existence of any underwriting or selling group relating thereto
of which ALPS, the Investment Adviser, or any affiliated person
of any of them, is a member, except to the extent permitted by
the Securities and Exchange Commission. Under certain
circumstances, the Fund may be at a disadvantage because of these
limitations in comparison with other investment companies which
have similar investment objectives but are not subject to such
limitations.
Investment decisions for the Fund are made independently
from those made for any other fund that may be offered by the
Trust, and from those made for other accounts advised or managed
by the Investment Adviser. Such other investment companies and
accounts may also invest in the same securities as the Fund.
When a purchase or sale of the same security is made at
substantially the same time on behalf of the Fund and any such
other investment company or account, that transaction will be
averaged as to price and available investments allocated as to
amount in a manner which the Investment Adviser believes to be
equitable to the Fund involved and such other investment company
or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the
size of the position obtained by the Fund. To the extent
permitted by law, the Investment Adviser may aggregate the
securities to be sold or purchased for the Fund with those to be
sold or purchased for other investment companies or accounts in
executing transactions.
The Trustees have adopted certain policies incorporating the
standards of Rule 17e-1 issued by the Securities and Exchange
Commission under the 1940 Act which requires that the commissions
paid to affiliates of the Fund must be reasonable and fair
compared to the commissions, fees or other remuneration received
or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable
period of time. The rule and procedures also contain review
requirements and require the Investment Adviser to furnish
reports to the Trustees and to maintain records in connection
with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion
of the brokerage commission given to affiliated brokers.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary
among different brokers.
Transactions in the over-the-counter market are generally
principal transactions with dealers and the costs of such
transactions involve dealer spreads rather than brokerage
commissions. With respect to over-the-counter transactions, the
Investment Adviser will normally deal directly with the brokers
or dealers who make a market in the securities involved except in
those circumstances where better prices and execution are
available elsewhere or as described below.
Securities purchased and sold by the Fund are generally
traded in the over-the-counter market on a net basis (i.e.,
without commission) through brokers or dealers, or otherwise
involve transactions directly with the issuer of an instrument.
The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down. During the Fund's fiscal years
ended December 31, 1994 and December 31, 1995, the Fund paid no
brokerage commissions. <R/>
The annualized portfolio turnover rate for the Fund is
calculated by dividing the lesser of purchases or sales of
portfolio securities for the year by the monthly average value of
the portfolio securities. The calculation excludes all
securities, including options, whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio
turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for
redemption of shares and by requirements which enable the Fund to
receive favorable tax treatment. Portfolio turnover will not be
a limiting factor in making portfolio decisions, and the Fund may
engage in short-term trading to achieve its investment objective.
Duff & Phelps, Moody's and S&P Ratings
The ratings of Duff & Phelps Credit Rating Co. ("D&P"),
Moody's Investors Service, Inc. ("Moody's), Standard & Poor's
Rating Group ("S&P") and any other nationally recognized
statistical rating organization represent their respective
opinions as to the quality of debt securities. It should be
emphasized, however, that ratings are general and are not
absolute standards of quality, and debt securities with the same
maturity, interest rate and rating may have different yields
while debt securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its
purchase by the Fund, an issue of debt securities may cease to be
rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. The Investment Adviser will
consider such an event in determining whether the Fund should
continue to hold the obligation.
The payment of principal and interest on most securities
purchased by the Fund will depend upon the ability of the issuers
to meet their obligations. An issuer's obligations under its
debt securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending
the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations
or, in the case of governmental entities, upon the ability of
such entities to levy taxes. The power or ability of an issuer
to meet its obligations for the payment of interest on and
principal of its debt securities may be materially adversely
affected by litigation or other conditions.
Variable and Floating Rate Instruments
The Fund may purchase variable rate and floating rate
obligations as described in the Prospectus. The Investment
Adviser will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such
obligations and, if the obligation is subject to a demand
feature, will monitor their financial status to meet payment on
demand. In determining average weighted portfolio maturity, an
instrument will usually be deemed to have a maturity equal to the
longer of the period remaining to the next interest rate
adjustment or the time the Fund can recover payment of principal
as specified in the instrument.
Repurchase Agreements
The repurchase price under the repurchase agreements
described in the Fund's Prospectus generally equals the price
paid by the Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the
securities underlying the repurchase agreement). Securities
subject to repurchase agreements are held by the Fund's custodian
(or sub-custodian) or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans under
the 1940 Act.
Bank Obligations
For purposes of the Fund's investment policies with respect
to bank obligations, the assets of a bank or savings institution
will be deemed to include the assets of its domestic and foreign
branches.
Municipal Obligations
Municipal Obligations include debt obligations issued by or
on behalf of states, territories and possessions of the United
States and the District of Columbia and their political
subdivisions, agencies and instrumentalities to obtain funds for
various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses and the
extension of loans to public institutions and facilities.
The two principal classifications of Municipal Obligations
consist of "general obligation" and "revenue" issues. General
obligation bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and
interest, and, accordingly, the capacity of the issuer of a
general obligation bond as to the timely payment of interest and
the repayment of principal when due is affected by the issuer's
maintenance of its tax base. Revenue bonds are payable only from
the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special tax
or other specific revenue source; accordingly, the timely payment
of interest and the repayment of principal in accordance with the
terms of such bonds is a function of the economic viability of
such facility or revenue source. The Fund's portfolio may
include "moral obligation" issues, which are normally issued by
special purpose authorities. There are, of course, variations in
the quality of Municipal Obligations both within a particular
classification and between classifications, and the yields on
Municipal Obligations depend upon a variety of factors, including
general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size
of a particular offering, the maturity of the obligation and the
rating of the issue.
Certain types of Municipal Obligations (private activity
bonds) are or have been issued to obtain funds to provide
privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit,
airport, port or parking facilities and certain local facilities
for water supply, gas, electricity or sewage or solid waste
disposal. Private activity bonds are also issued by privately
held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments
are authorized in most states to issue private activity bonds for
such purposes in order to encourage corporations to locate within
their communities. The principal and interest on these
obligations may be payable from the general revenues of the users
of such facilities.
From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the
Federal income tax exemption for interest on Municipal
Obligations. For example, under the Federal tax legislation
enacted in 1986, interest on certain private activity bonds must
be included in an investor's alternative minimum taxable income,
and corporate investors must treat all tax-exempt interest as an
item of tax preference.
As stated in the Prospectus, the Fund may, when deemed
appropriate by the Investment Adviser in light of the particular
Fund's investment objective, invest in Municipal Obligations.
Dividends paid by the Fund that are derived from interest of
Municipal Obligations would be taxable to the Fund's shareholders
for Federal income tax purposes.
Insured Municipal Obligations
Certain of the Municipal Obligations held by the Fund may be
insured as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the
Municipal Obligation at the time of its original issuance. In
the event that the issuer defaults on interest or principal
payment, the insurer will be notified and will be required to
make payment to the bondholders. There is, however, no guarantee
that the insurer will meet its obligations. In addition, such
insurance will not protect against market fluctuations caused by
changes in interest rates and other factors.
Stand-By Commitments
The Fund may acquire stand-by commitments with respect to
Municipal Obligations held by the Fund. Under a stand-by
commitment, a dealer or bank agrees to purchase from the Fund, at
the Fund's option, specified Municipal Obligations at their
amortized cost value to the Fund plus accrued interest, if any.
Stand-by commitments may be sold, transferred or assigned by the
Fund only with the underlying Municipal Obligation.
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may
pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Where the Fund
paid any consideration directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized
depreciation for the period during which the commitment was held
by the Fund.
The Fund intends to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the Investment
Adviser's opinion, present minimal credit risks. The Fund's
reliance upon the credit of these dealers, banks and broker-
dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment. In evaluating
the creditworthiness of the issuer of a stand-by commitment, the
Investment Adviser will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial
information.
The Fund would acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise
its rights thereunder for trading purposes. Stand-by commitments
acquired by the Fund would be valued at zero in determining net
asset value.
Reverse Repurchase Agreements
At the time the Fund enters into a reverse repurchase
agreement (an agreement under which the Fund sells portfolio
securities and agrees to repurchase them at an agreed-upon date
and price), it will place in a segregated custodial account
liquid assets such as U.S. Government securities or other liquid
high grade debt securities having a value equal to or greater
than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that such value is
maintained. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Fund may decline
below the price of the securities it is obligated to repurchase.
Reverse repurchase agreements are considered to be borrowings
under the 1940 Act. The Fund intends to limit its borrowings
(including reverse repurchase agreements) during the current
fiscal year to not more than 5% of its net assets.
When-Issued and Delayed Delivery Transactions
When the Fund agrees to purchase securities on a when-issued
or delayed delivery basis, its custodian will set aside cash,
U.S. Government securities or other liquid high-grade debt
obligations equal to the amount of the purchase or the commitment
in a separate account. Normally, the custodian will set aside
portfolio securities to meet this requirement. The market value
of the separate account will be monitored and if such market
value declines, the Fund will be required subsequently to place
additional assets in the separate account in order to ensure that
the value of the account remains equal to the amount of the
Fund's commitments. Because the Fund will set aside cash or
liquid high-grade debt securities in the manner described, the
Fund's liquidity and ability to manage its portfolio might be
affected in the event its when-issued purchases or delayed
delivery commitments ever exceeded 25% of the value of its
assets. In the case of a delayed delivery of the sale of
portfolio securities, the Fund's custodian will hold the
portfolio securities themselves in a segregated account while the
commitment is outstanding.
The Fund will make commitments to purchase securities on a
when-issued basis or delayed delivery basis only with the
intention of completing the transaction and actually purchasing
or selling the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or
renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities
are delivered to the Fund on the settlement date. In these cases
the Fund may realize a capital gain or loss.
When the Fund engages in when-issued and delayed delivery
transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in the Fund's
incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
The value of the securities underlying a when-issued
purchase or a delayed delivery to purchase securities, and any
subsequent fluctuations in their value, is taken into account
when determining a Fund's net asset value starting on the day the
Fund agrees to purchase the securities. The Fund does not earn
interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When the
Fund makes a delayed delivery of the sale of securities it owns,
the proceeds to be received upon settlement are included in the
Fund's assets, and fluctuations in the value of the underlying
securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
U.S. Government Obligations
The Fund may invest in Mortgage-Related Securities,
including those representing an undivided ownership interest in a
pool of mortgages, such as certificates of the Government
National Mortgage Association ("GNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These certificates are in most
cases pass-through instruments, through which the holder receives
a share of all interest and principal payments from the mortgages
underlying the certificate, net of certain fees. The average
life of a Mortgage-Related Security varies with the underlying
mortgage instruments, which have maximum maturities of 40 years.
The average life is likely to be substantially less than the
original maturity of the mortgage pools underlying the securities
as the result of prepayments, mortgage refinancings or
foreclosure. Mortgage prepayment rates are affected by various
factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social
and demographic conditions. Such prepayments are passed through
to the registered holder with the regular monthly payments of
principal and interest and have the effect of reducing future
payments.
Government securities with nominal remaining maturities in
excess of 3-1/2 years that have variable or floating interest
rates or demand or put features may nonetheless be deemed to have
remaining maturities of 3-1/2 years or less so as to be
permissible investments for the Fund as follows: (a) a
government security with a variable or floating rate of interest
will be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate; (b) a
government security with a demand or put feature that entitles
the holder to receive the principal amount of the underlying
security at the time of or sometime after the holder gives notice
of demand or exercise of the put will be deemed to have a
maturity equal to the period remaining until the principal amount
can be recovered through demand or exercise of the put; and (c) a
government security with both a variable or floating rate of
interest as described in clause (a) and a demand or put feature
as described in clause (b) will be deemed to have a maturity
equal to the shorter of the period remaining until the next
readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand or exercise
of the put.
Securities Issued by Other Investment Companies
The Fund may invest in securities issued by other investment
companies within the limits prescribed by the 1940 Act. The Fund
currently intends to limit such investments so that, as
determined immediately after a purchase is made: (a) not more
than 5% of the value of its total assets will be invested in the
securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; (c)
not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more
than 10% of the outstanding voting stock of any one investment
company will be owned in the aggregate by the Fund and other
investment companies advised by the Investment Adviser. As a
shareholder of another investment company, the Fund would bear,
along with other shareholders, its pro rata portion of the
expenses of such other investment company, including advisory
fees. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with
its own operations; and may represent a duplication of fees to
shareholders of the Fund.
Investment Limitations
The Fund's investment objective and policies may be changed
by the Trust's Board of Trustees without the approval of the
holders of a majority of the Fund's outstanding shares (as
defined under "Miscellaneous" below). However, the Fund may not
change the following investment limitations without such
approval. The Fund may not:
1. Purchase securities of any one issuer (other than
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, immediately after such
purchase, more than 5% of the value of the Fund's total assets
would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned
by the Fund, except that up to 25% of the value of the Fund's
total assets may be invested without regard to these limitations.
2. Purchase any securities which would cause 25% or more
of the Fund's total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their
principal business activities in the same industry, provided
that: (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities of
the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate
industry.
3. Make loans, except that the Fund may purchase and hold
debt instruments and enter into repurchase agreements in
accordance with its investment objective and policies and may
lend portfolio securities in an amount not exceeding 30% of its
total assets.
4. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to the Fund's transactions
in futures contracts and related options, and (b) a Fund may
obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
5. Purchase or sell commodity contracts, or invest in oil,
gas or mineral exploration or development programs, except that
the Fund may, to the extent appropriate to its investment
objective, purchase publicly traded securities of companies
engaging in whole or in part in such activities and may enter
into futures contracts and related options.
6. Purchase or sell real estate, except that the Fund may
purchase securities of issuers which deal in real estate and may
purchase securities which are secured by interests in real
estate.
7. Purchase securities of companies for the purpose of
exercising control.
8. Acquire any other investment company or investment
company security except in connection with a merger,
consolidation, reorganization or acquisition of assets or where
otherwise permitted by the 1940 Act.
9. Act as an underwriter of securities within the meaning
of the Securities Act of 1933 except insofar as it might be
deemed to be an underwriter upon disposition of portfolio
securities acquired within the limitation on purchases of
restricted securities and except to the extent that the purchase
of obligations directly from the issuer thereof in accordance
with the Fund's investment objective, policies and limitations
may be deemed to be underwriting.
10. Write or sell put options, call options, straddles,
spreads, or any combination thereof, except for transactions in
options on securities, futures contracts and options on futures
contracts.
* * *
If a percentage limitation is met at the time the Fund makes
an investment, a later change in such percentage due to a change
in the value of the Fund's portfolio securities will not result
in a violation of such limitation.
In order to permit the sale of the Fund's shares in certain
states, the Fund may agree to certain restrictions that may be
stricter than the investment policies and limitations described
above. Should the Fund determine that any such restriction is no
longer in the Fund's best interest it will revoke any such
agreement by no longer selling Fund shares in the state involved.
NET ASSET VALUE
The net asset value per share of the Fund is calculated as
set forth in the Prospectus for the Fund. For purposes of such
calculation, "assets which belong to" the Fund consist of the
consideration received upon the issuance of shares of the Fund
together with all income, earnings, profits and proceeds derived
from the investment thereof, including any proceeds from the
sale, exchange or liquidation of such investments, any funds or
payments derived from any reinvestment of such proceeds, and a
portion of any general assets of the Trust not belonging to a
particular investment portfolio that are allocated to that
portfolio by the Trust's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems
fair and equitable. It is anticipated that general assets will
normally be allocated to particular portfolios based on their
relative net asset values at the time of allocation. Assets
belonging to the Fund are charged with the direct liabilities and
expenses of the Fund and with a share of the general liabilities
and expenses of the Trust which will also normally be allocated
to particular portfolios based on their relative net asset values
at the time of allocation. Allocations of general assets and
general liabilities and expenses of the Trust to particular
portfolios will be made in accordance with generally accepted
accounting principles. Subject to the provisions of the
Declaration of Trust, determinations by the Board of Trustees as
to the direct and allocable liabilities, and the allocable
portion of any general assets, with respect to the Fund are
conclusive.
Securities which are traded on a recognized stock exchange
are valued at the last sale price occurring prior to the close of
regular trading on the securities exchange on which such
securities are primarily traded or at the last sale price
occurring prior to the close of regular trading on the national
securities market. Securities traded on only over-the-counter
markets are valued on the basis of closing over-the-counter bid
prices. Securities for which there were no transactions are
valued at the average of the current bid and asked prices.
Restricted securities, securities for which market quotations are
not readily available, and other assets are valued at fair value
by ALPS and the Adviser under the supervision of the Board of
Trustees. In computing net asset value, ALPS will "mark to
market" the current value of the Fund's open futures contracts
and options.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in the Fund are sold on a continuous basis through
ALPS. The Prospectus for the Fund describes those persons and
entities that are eligible to purchase the Fund's shares.
In an exchange, the redemption of shares being exchanged
will be made at the per-share net asset value of the shares to be
redeemed next determined after the exchange request is received.
The shares of the portfolio to be acquired will be purchased at
the per-share net asset value of those shares (plus any
applicable sales load) next determined after acceptance of the
purchase order by the Trust in accordance with its customary
policies for accepting investments.
Under the 1940 Act, the Fund may suspend the right of
redemption or postpone the date of payment for shares during any
period when: (a) trading on the New York Stock Exchange (the
"NYSE") is restricted by applicable rules and regulations of the
Securities and Exchange Commission; (b) the NYSE is closed for
other than customary weekend and holiday closings; (c) the
Securities and Exchange Commission has by order permitted such
suspension; or (d) an emergency exists as determined by the
Securities and Exchange Commission. (The Fund may also suspend
or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
In addition to the situations described in the Prospectus
under "HOW TO REDEEM SHARES," the Fund may redeem shares
involuntarily if it appears appropriate to do so in light of the
Fund's responsibilities under the 1940 Act or to reimburse the
Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the
shareholder or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust. Under the
Trust's Declaration of Trust, the beneficial interest in the
Trust may be divided into an unlimited number of full and
fractional transferable shares. The Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any
unissued shares of the Trust into one or more portfolios by
setting or changing in any one or more respects, their respective
designations, preferences, conversion or other rights, voting
powers, restrictions, limitations, qualifications and terms and
conditions of redemption. Pursuant to such authority, the Board
of Trustees has authorized the issuance of one series of shares
representing interests in the Fund's investment portfolio. The
Trustees may similarly classify or reclassify any particular
series of shares into one or more class. At present, there is
only one class of shares in the existing portfolio.
Each share of the Trust has no par value, represents an
equal proportionate interest in a particular fund and is entitled
to such dividends and distributions out of the income earned on
such fund's assets as are declared in the discretion of the
Trustees. Shares of the Fund have no preemptive rights and only
such conversion or exchange rights as the Board of Trustees may
grant in its discretion. When issued for payment as described in
the Prospectus, the Fund's shares will be fully paid and non-
assessable by the Trust. In the event of a liquidation or
dissolution of the Trust or the Fund, shareholders of the Fund
would be entitled to receive the assets available for
distribution belonging to the Fund, and a proportionate
distribution, based upon the relative net asset values of the
Trust's respective investment portfolios, of any general assets
not belonging to any particular portfolio which are available for
distribution. Shareholders of the Fund are entitled to
participate in the net distributable assets of the Fund involved
on liquidation, based on the number of shares of the Fund that
are held by each of them, respectively.
Shareholders of the Fund, as well as those of the other
investment portfolios offered by the Trust, will vote together in
the aggregate and not separately on a fund-by-fund basis, except
as otherwise required by law or when the Board of Trustees
determines that the matter to be voted upon affects only the
interests of the shareholders of a particular fund or portfolio.
Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting
securities of an investment company such as the Trust shall not
be deemed to have been effectively acted upon unless approved by
the holders of a majority of the outstanding shares of each fund
affected by the matter. A fund is affected by a matter unless it
is clear that the interests of each fund in the matter are
substantially identical or that the matter does not affect any
interest of the fund. Under the Rule, the approval of an
investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to
a fund only if approved by a majority of the outstanding shares
of such fund. However, the Rule also provides that the
ratification of the appointment of independent public
accountants, the approval of principal underwriting contracts and
the election of Trustees may be effectively acted upon by
shareholders of the Trust voting without regard to a particular
fund.
There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less
than a majority of the Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will
call a shareholders meeting for the election of Trustees. Shares
of the Trust have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Trust's outstanding shares
(irrespective of class) may elect all of the Trustees. The
Declaration of Trust provides that meetings of shareholders of
the Trust shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding
shares entitled to vote. Except as set forth above, the Trustees
shall continue to hold office and may appoint successor Trustees.
The Trust's Declaration of Trust authorizes the Board of
Trustees, without shareholder approval (unless otherwise required
by applicable law), to: (a) sell and convey the assets belonging
to a series of shares to another management investment company
for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding
shares of such series to be redeemed at a price which is equal to
their net asset value and which may be paid in cash or by
distribution of the securities or other consideration received
from the sale and conveyance; (b) sell and convert the assets
belonging to a series of shares into money and, in connection
therewith, to cause all outstanding shares of such series to be
redeemed at their net asset value; or (c) combine the assets
belonging to a series of shares with the assets belonging to one
or more other series of shares if the Board of Trustees
reasonably determines that such combination will not have a
material adverse effect on the shareholders of any series
participating in such combination and, in connection therewith,
to cause all outstanding shares of any such series to be redeemed
or converted into shares of another series of shares at their net
asset value. However, the exercise of such authority may be
subject to certain restrictions under the 1940 Act. The Board of
Trustees may authorize the termination of any series of shares
after the assets belonging to such series have been distributed
to its shareholders.
TAX STATUS
The following discussion reflects applicable Federal income
tax law, as of the date of this Statement of Additional
Information.
Taxation of the Fund
The Fund intends to qualify each year and to elect to be
treated as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). To
qualify as a regulated investment company, the Fund must comply
with certain requirements of the Code relating to, among other
things, the source of its income and the diversification of its
assets. Included among such requirements is the requirement that
the Fund must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stocks,
securities or foreign currencies or other income (including, but
not limited to, gains from options, futures or forward contracts)
derived with respect to its business of investing in such stocks,
securities or currencies.
If the Fund qualifies as a regulated investment company and
distributes each year to its shareholders at least 90% of its net
investment income (which includes net short-term capital gains,
but not net capital gains, which are the excess of net long-term
capital gains over net short-term capital losses), it will not be
required to pay Federal income taxes on any income distributed to
shareholders. The Fund intends to distribute at least the
minimum amount of net investment income necessary to satisfy the
distribution requirement. The Fund will not be subject to
Federal income tax on any net capital gains distributed to its
shareholders. As a Massachusetts business trust, the Fund will
not be subject to any excise or income taxes in Massachusetts as
long as it qualifies as a regulated investment company for
Federal income tax purposes.
Income from certain foreign securities may be subject to
foreign withholding taxes. Shareholders of the Fund will not be
able to claim any deduction or foreign tax credit with respect to
any such foreign taxes.
In order to avoid a nondeductible 4% excise tax the Fund
will be required to distribute, by December 31 of each year, at
least 98% of its ordinary income for such year and at least 98%
of its capital gains net income (the latter of which is generally
computed on the basis of the one-year period ending on October 31
of such year), plus any amounts that were not distributed in
previous taxable years. For purposes of the excise tax, any
ordinary income or capital gains net income retained by, and
subject to Federal income tax in the hands of, the Fund will be
treated as having been distributed.
If the Fund failed to satisfy the 90% distribution
requirement or otherwise failed to qualify as a regulated
investment company in any taxable year, the Fund would be taxed
as an ordinary corporation on all of its taxable income (even if
such income were distributed to its shareholders) and all
distributions out of earnings and profits would be taxed to
shareholders as ordinary income. To qualify again as a regulated
investment company in a subsequent year the Fund may be required
to pay an interest charge on 50% of its earnings and profits
attributable to nonregulated investment company years and would
be required to distribute such earnings and profits to
shareholders (less any interest charge). In addition, if the
Fund failed to qualify as a regulated investment company for its
first taxable year or if, immediately after qualifying as a
regulated investment company for any taxable year, it failed to
qualify for a period greater than one taxable year, the Fund
would be required to recognize any net built-in gains (the excess
of aggregate gains over aggregate losses that would have been
realized if it had been liquidated) in order to qualify as a
regulated investment company in a subsequent year.
Some of the Fund's investment practices, including those
involving certain risk management transactions, may be subject to
special provisions of the Code that, among other things, defer
the use of certain losses of the Fund and affect the holding
period of the securities held by the Fund and the character of
the gains or losses realized by the Fund. These provisions may
also require the Fund to mark-to-market some of the positions in
its portfolio (i.e., treat them as if they were closed out),
which may cause the Fund to recognize income without receiving
cash with which to make distributions in amounts necessary to
satisfy the 90% distribution requirement and to avoid Federal
income and excise taxes. Thus, these provisions could affect the
amount, timing and character of distributions to shareholders.
The Fund will monitor its transactions and may make certain tax
elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment
company.
Investments of the Fund in securities issued at a discount
or providing for deferred interest or payment of interest in kind
are subject to special tax rules that could affect the amount,
timing and character of distributions to shareholders. For
example, with respect to certain securities issued at a discount,
the Fund will be required to accrue as income each year a portion
of the discount and to distribute such income each year in order
to maintain its qualification as a regulated investment company
and to avoid income and excise taxes. In order to generate
sufficient cash to make distributions necessary to satisfy the
90% distribution requirement and to avoid income and excise
taxes, the Fund may have to dispose of securities that it would
otherwise have continued to hold.
The Fund's ability to dispose of portfolio securities may be
limited by the requirement for qualification as a regulated
investment company that less than 30% of the Fund's gross income
be derived from the disposition of securities held for less than
three months.
Distributions
Distributions of the Fund's net investment income are
taxable to shareholders as ordinary income, whether paid in cash
or reinvested in additional shares. Distributions of the Fund's
net capital gains ("capital gain dividends"), if any, are taxable
to a shareholder as long-term capital gains regardless of the
length of time the shares have been held by such holder.
Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of the shares held by the
shareholders and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such shareholders
(assuming such shares are held as a capital asset). Shareholders
receiving distributions in the form of additional shares issued
by the Fund will be treated for Federal income tax purposes as
receiving a distribution in an amount equal to the fair market
value of the shares received, determined as of the distribution
date.
Although dividends generally will be treated as distributed
when paid, dividends declared in October, November or December,
payable to shareholders of record on a specified date in such a
month and paid during January of the following year, will be
treated as having been distributed by the Fund and received by
shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a
taxable year of the Fund may be "spilled back" and treated as
having been paid by the Fund (except for purposes of the
nondeductible 4% excise tax) during such taxable year. In such
case, shareholders will be treated as having received such
dividends in the taxable year in which the distribution is
actually made.
The Fund will inform shareholders of the source and tax
status of all distributions promptly after the close of each
calendar year. Distributions attributable to any dividend income
earned by the Fund will be eligible for the dividends-received
deduction for corporations if certain requirements of the Code
are satisfied.
The Fund is required in certain circumstances to withhold
31% of taxable dividends and certain other payments, including
redemptions, paid to shareholders who do not furnish to the Fund
their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required
certifications or who are otherwise subject to backup
withholding.
Sale of Shares
Redeeming shareholders will recognize gain or loss in an
amount equal to the difference between the basis of their
redeemed shares and the amount received. If such shares are held
as a capital asset, the gain or loss will be a capital gain or
loss and will be long-term if such shares have been held for more
than one year. Any loss realized upon a taxable disposition of
shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends received
with respect to such shares.
General
The Federal income tax discussion set forth above is for
general information only. Prospective investors should consult
their own advisors regarding the specific Federal tax
consequences of holding and disposing of shares and any proposed
tax law changes. Distributions may be subject to treatment under
state, local and foreign tax laws which differ from the Federal
income tax consequences.
MANAGEMENT OF THE FUND
Trustees and Officers
The Trustees and officers of the Trust, their addresses,
principal occupations during the past five years and other
affiliations are as follows:
Name and Position with Principal Occupations During
Address the Trust 5 Years and Other Affiliations
Calvin J. Pedersen* Chairman, Mr. Pedersen is President of
55 East Monroe St. President and Phoenix Duff & Phelps
Chicago, IL 60603 Chief Executive Corporation and Chairman of the
Age: 54 Officer Board of Directors of the
Investment Adviser. Mr.
Pedersen is also President and
Chief Executive Officer of Duff
& Phelps Utilities Income Inc.,
Duff & Phelps Utilities Tax-Free
Income Inc.and Duff & Phelps
Utility and Corporate Bond Trust
Inc. Mr. Pedersen is a
Director/Trustee of all
investment companies advised by
Phoenix Duff & Phelps
Corporation and its affiliates.
E. Virgil Conway Trustee Mr. Conway is Chairman of the
9 Rittenhouse Road Metropolitan Transportation
Bronxville, NY 10708 Authority (1992-present),
Age: 66 Chairman (1990) of the Audit
Committee of the City of New
York (1981-present), Chairman
and Director of New York Housing
Partnership Development Corp.
(1981-present) and a Trustee/
Director of Consolidated
Edison Company of New York, Inc.
(1970-present), Pace University
(1978-present), Atlantic Mutual
Insurance Company (1974-
present), HRE Properties (1989-
present), Greater New York
Councils, Boy Scouts of America
(1985-present), Union Pacific
Corp. (1978-present), Atlantic
Reinsurance Company (1986-
present), Blackstone Fund for
Fannie Mae Mortgage Securities
(Advisory Director) (1989-
present), Blackstone Fund for
Freddie Mac Securities (Advisory
Director) (1990-present),
Centennial Insurance Company
(1974-present), Josiah Macy,
Jr., Foundation (1973-present),
The Harlem Youth Development
Foundation (1984-present),
Trism, Inc. (1994-present),
Accuhealth, Inc. (1994-present),
Realty Foundation of New York
(1972-present). Mr. Conway is
also Director/Trustee, Phoenix
Funds (1993-present), Phoenix
Duff & Phelps Institutional
Mutual Funds (1995-present),
Duff & Phelps Utilities Income
Fund Inc.(1995-present) and
Duff & Phelps Utility and
Corporate Bond Trust Inc.
(1995-present). Mr. Conway was
formerly Chairman of Financial
Accounting Standards Advisory
Counsel (1992-1995) and formerly
a Director of New York Chamber
of Commerce and Industry (1974-
1990).
William W. Crawford Trustee Mr. Crawford currently is
3003 Gulf Shore Blvd. retired and is the former
North Naples, President and Chief Operating
FL 33940 Officer of Hilliard, Lyons,
Age: 67 Inc., a registered broker-
dealer. Mr. Crawford also is a
Trustee of Phoenix Duff & Phelps
Institutional Mutual Funds.
William N. Georgeson Trustee Mr. Georgeson currently is
575 Glenwood Road retired and is a former Vice
Lake Forest, President of Nuveen Advisory
IL 60045 Corp., an investment adviser.
Age: 67 Mr. Georgeson is also a
Director/Trustee of each of
Duff & Phelps Utilities Tax-Free
Income Inc., Duff & Phelps
Utility and Corporate Bond Trust
Inc. and Phoenix Duff & Phelps
Institutional Mutual Funds.
Everett L. Morris Trustee Mr. Morris is a Vice President
164 Laird Road of W.H. Reaves and Company. Mr.
Colts Neck, NJ 07722 Morris is a Director/Trustee
Age: 66 of all investment companies
advised by Phoenix Duff & Phelps
Corporation and its
affiliates. Prior to March
1993, Mr. Morris was a Director
of Public Service Enterprise
Group Incorporated and President
and Chief Operating Officer of
Enterprise Diversified Holdings
Incorporated. Prior to January
1992, Mr. Morris was Senior
Executive Vice President and
Chief Financial Officer of
Public Service Electric and Gas
Company. Prior to 1991, Mr.
Morris was a Director of First
Fidelity Bank, N.A., N.J.
Richard A. Pavia Trustee Mr. Pavia is a Director of Speer
7145 North Ionia Financial, Inc., a company
Chicago, IL 60646 specializing in public finance.
Age: 64 Mr. Pavia has retired from his
position as Chairman and Chief
Executive Officer of Speer
Financial, Inc. Mr. Pavia is
also a Director/Trustee of
each of Duff & Phelps Utilities
Tax-Free Income Inc., Duff &
Phelps Utility and Corporate
Bond Trust Inc. and Phoenix
Duff & Phelps Institutional
Mutual Funds.
Robert Moore Executive Mr. Moore is an Executive Vice
55 East Monroe Street Vice Presi- President of the Investment
Chicago, IL 60603 dent and Chief Adviser. Mr. Moore is also a
Age: 33 Investment Vice President of Phoenix Duff
Officer & Phelps Institutional Mutual
Funds. Prior to joining the
Investment Adviser, Mr. Moore
was a Principal and Portfolio
Manager with Harris Investment
Management and was a lead
portfolio manager with Ford
Motor Company.
Mark A. Pougnet Treasurer Mr. Pougnet is Chief Financial
370 Seventeenth Officer for ALPS Mutual Funds
Street, Suite 2700 Services, Inc. Prior to
Denver, CO 80202 joining ALPS, Mr. Pougnet was
Age: 34 Executive Director of
Syndication Accounting for
Paramount Pictures-Television
Group.
Marvin E. Flewellen Senior Vice Mr. Flewellen is a Senior Vice
55 East Monroe Street President and President and Fixed Income
Chicago, IL 60603 Portfolio Portfolio Manager of the
Age: 32 Manager Investment Adviser. Mr.
Flewellen is also a Vice
President of Phoenix Duff &
Phelps Institutional Mutual
Funds. Prior to joining the
Investment Adviser in 1994, Mr.
Flewellen was Second Vice
President and Portfolio Manager
of Northern Trust Bank.
Thomas N. Steenburg Secretary Mr. Steenburg is Vice President
One American Row and Counsel of Phoenix Duff &
Hartford, CT 06102 Phelps Corporation. Mr.
Age: 47 Steenburg is also Secretary of
the Phoenix Funds. Prior to
joining Phoenix Duff & Phelps
Corporation, Mr. Steenburg was
Counsel of Phoenix Home Life
Insurance company
Mary Jo Metz Assistant Ms. Metz is an Assistant Vice
55 East Monroe Street Treasurer and President of the Adviser. Ms.
Chicago, IL 60603 Assistant Metz is a C.P.A. and prior
Secretary to joining the Adviser, she was
an auditor for Arthur Andersen
LLP. <R/>
* "Interested persons" of the Trust as defined in the 1940
Act.
___________________________________________________
As of April 24, 1996, the Trustees and officers as a group
owned less than 1% of the Fund's shares. <R/>
To the knowledge of the Fund, as of April 24, 1996, no
person owned of record of beneficially 5% or more of the Fund's
shares, except as follows: River Oaks Trust, custodian for
Howard Hospital, Stephen K. Bronlo, Lynn Trafto, Howard Wong,
P.O. Box 4886, Houston TX 77210-4886 owned 21.74% of the
Fund's shares; International Union of Operating Engineers of
Eastern Pennsylvania and Delaware Annuity Fund, c/o Robert J.
Moore, 55 East Monroe, 38th Floor, Chicago, IL 60603-5702 owned
15.61% of the Fund's shares; Delta Airlines Inc., c/o Robert J.
Moore, 55 East Monroe, 38th Floor, Chicago, IL 60603-5702 owned
19.25% of the Fund's shares; River Oaks Trust, Custodian for
TXIW Pension Funds, Stephen K. Bronlo, Lynn Trafto, Howard Wong,
P.O. Box 4886, Houston, TX 77210-4486 owned 8.88% of the Fund's
shares; Eastern Airlines Retiree Health and Benefits Trust, c/o
Robert J. Moore, 55 East Monroe, 38th Floor, Chicago, IL 60603-
5702 owned 7.85% of the Fund's shares and International Union
of Operating Engineers Welfare Fund of Eastern PA and Delaware,
c/o Michael J. Ragan, 925 Harvest Drive, Suite 220, Blue Bell, PA
19422-1956 owned 7.59% of the Fund's shares. <R/>
Trustee Compensation
Each disinterested Trustee of the Trust receives from the
Investment Adviser a $24,000 aggregate annual fee for service as
Trustee of the Fund and as Trustee or director of Duff & Phelps
Utilities Income Fund, Inc. and Duff & Phelps Utility and
Corporate Bond Trust Inc. (each of which is also advised by the
Investment Adviser). Such annual fee is allocated among the Fund
and such other investment companies pro rata based upon each
investment company's respective net asset value. In addition,
each disinterested Trustee receives $1,000 for each Board meeting
attended and $500 for each Board committee meeting attended, as
well as reimbursement of expenses incurred in attending such
meetings. The chairman of each committee of the Fund's Board of
Trustees receives $2,500 per year. <R/>
Total
Pension or compensation
Aggregate Retirement from
Compensation Benefits Estimated Registrant
Name1 from Accrued as Annual and Fund
Registrant2 Part of Benefits Complex
Fund Upon Paid to
Expenses Retirement Directors3
William W. Crawford $ 1,500 N/A N/A $3,000
William N. Georgeson $15,840 N/A N/A $53,000
Everett L. Morris $12,340 N/A N/A $50,750
Richard A. Pavia $12,340 N/A N/A $49,500
____________________
1 Mr. Pedersen is an "interested person" of the Trust and
did not receive any compensation directly from the Trust.
Mr. Conway was appointed as a trustee of the Trust effective
December 21, 1995 and received no compensation from the
Registrant during its fiscal year ended December 31, 1995.
2 The amounts shown are from the Fund's fiscal year ended
December 31, 1995.
3 There are three funds in the Fund Complex; the amounts shown
are accumulated from the Aggregate Compensation from each
fund in the Fund Complex during such fund's fiscal year
ended in 1995. <R/>
Shareholder and Trustee Liability
Under Massachusetts law, shareholders of a business trust
may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, the Trust's
Declaration of Trust provides that shareholders shall not be
subject to any personal liability in connection with the assets
of the Trust for the acts or obligations of the Trust, and that
every note, bond, contract, order or other undertaking made by
the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the
trust property of any shareholder held personally liable solely
by reason of his or her being or having been a shareholder and
not because of his or her acts or omissions or some other reason.
The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust, and shall
satisfy any judgment thereon. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be
unable to meet its obligations.
The Declaration of Trust states further that no Trustee,
officer or agent of the Trust shall be personally liable for or
on account of any contract, debt, tort, claim, damage, judgment
or decree arising out of or connected with the administration or
preservation of the trust property or the conduct of any business
of the Trust; nor shall any Trustee be personally liable to any
person for any action or failure to act except by reason of his
own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as Trustee. The Declaration of Trust
also provides that all persons having any claim against the
Trustees or the Trust shall look solely to the trust property for
payment. With the exception stated, the Declaration of Trust
provides that a Trustee is entitled to be indemnified against all
liabilities and expense reasonably incurred by him in connection
with the defense or disposition of any proceeding in which he may
be involved or with which he may be threatened by reason of his
being or having been Trustee, and that the Trustees will
indemnify representatives and employees of the Trust to the same
extent that Trustees are entitled to indemnification.
Investment Adviser
Duff & Phelps Investment Management Co. serves as investment
adviser to the Fund. In the Investment Advisory Agreement, the
Investment Adviser has agreed to provide a continuous investment
program for the Fund and to pay all expenses incurred by it in
connection with its advisory activities, other than the cost of
securities and other investments, including brokerage commissions
and other transaction charges, if any, purchased or sold for the
Fund. During the Fund's fiscal years ended December 31, 1995 and
December 31, 1994, the Adviser received $100,121 and $18,346,
respectively. <R/>
The Investment Adviser also agrees that if, in any fiscal
year, the expenses borne by a Fund exceed the applicable expense
limitations imposed by the securities regulations of any state in
which shares of a Fund are registered or qualified for sale to
the public, it will reimburse the Fund for any excess to the
extent required by such regulations. To the Fund's knowledge, on
the date of this Statement of Additional Information the most
restrictive expense limitations imposed by state securities
regulations which were applicable to the Fund were as follows:
two and one-half percent of the first $30 million of average net
assets, two percent of the next $70 million of average net
assets, and one and one-half percent of the remaining average net
assets.
The Investment Advisory Agreement provides that the
Investment Adviser shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund in
connection with the performance of such agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence
on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its duties and
obligations under the Investment Advisory Agreement.
Under the terms of a service agreement among the Investment
Adviser, Phoenix Duff & Phelps Corporation and the Trust (the
"Service Agreement"), Phoenix Duff & Phelps Corporation makes
available to the Investment Adviser the services, on a part-time
basis, of their employees and various facilities to enable the
Investment Adviser to perform certain of its obligations to the
Fund. However, the obligation of performance under the
Investment Advisory Agreement is solely that of the Investment
Adviser, for which Phoenix Duff & Phelps Corporation assumes no
responsibility, except as described in the preceding sentence.
The Investment Adviser reimburses Phoenix Duff & Phelps
Corporation for any costs, direct or indirect, as are fairly
attributable to the services performed and the facilities
provided by Phoenix Duff & Phelps Corporation under the Service
Agreement. The Investment Adviser compensates Phoenix Duff &
Phelps Corporation for such services out of its own assets and
the Trust does not compensate Phoenix Duff & Phelps Corporation
under the Service Agreement. <R/>
The Investment Advisory Agreement provides, in general, that
the Investment Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Trust in
connection with the performance by the Investment Adviser of its
duties and obligations under the Investment Advisory Agreement,
except for a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Investment Adviser in the
performance of its obligations and duties, or by reason of its
reckless disregard of the obligations or duties under the
Investment Advisory Agreement. The Service Agreement provides,
in general, that Phoenix Duff & Phelps Corporation shall
not liable for any loss suffered by the Trust from or as a
consequence of any act or omission of Phoenix Duff & Phelps
Corporation in connection with the Service Agreement, except by
reason of willful misfeasance, bad faith or gross negligence on
the part of Phoenix Duff & Phelps Corporation or by reason of
reckless disregard by Phoenix Duff & Phelps Corporation of its
obligations under the Service Agreement. <R/>
Distributor, Administrator and Bookkeeping and Pricing Agent
ALPS acts as Distributor of the Fund's shares pursuant to a
Distribution Agreement with the Trust. Shares are sold on a
continuous basis through ALPS as agent, and ALPS has agreed to
use its best efforts to solicit orders for the sale of shares,
although it is not obliged to sell any particular amount of
shares.
ALPS also provides administrative services as described in
the Prospectus to the Fund pursuant to an Administration
Agreement, and has agreed to pay all expenses incurred by it in
connection with its administrative activities. Under the
Administration Agreement, ALPS is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of the Administration
Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of ALPS in the performance
of its duties or from its reckless disregard of its duties and
obligations under the Agreement. The Administration Agreement is
effective February 1, 1994 and will continue until February 1,
1997 unless sooner terminated by either party.
The Fund has entered into a Bookkeeping and Pricing
Agreement with ALPS pursuant to which ALPS has agreed to maintain
the financial accounts and records of the Fund and to compute the
net asset value and certain other financial information of the
Fund. ALPS subcontracts certain of its bookkeeping and pricing
duties to American Data Services, Inc., a provider of accounting
services to investment companies.
Custodian and Sub-Transfer Agent
State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts 02015 (the "Custodian"), serves as Custodian of the
Fund's assets pursuant to a Custodian Contract. Under the
Custodian Agreement, the Custodian has agreed to (a) maintain a
separate account in the name of the Fund; (b) make receipts and
disbursements of money on behalf of the Fund; (c) collect and
receive all income and other payments and distributions on
account of the Fund's portfolio securities; (d) respond to
correspondence from shareholders, security brokers and others
relating to its duties; and (e) make periodic reports to the
Trust's Board of Trustees concerning the Fund's operations. The
Custodian may, at its own expense, open and maintain a custody
account or accounts on behalf of the Fund with other banks or
trust companies, provided that the Custodian shall remain liable
for the performance of all of its duties under the Custodian
Contract notwithstanding any delegation. For its services as
custodian, the Custodian is entitled to receive compensation of
.01% of the aggregate market value of the portfolio securities of
the Fund (and all other investment portfolios of the Trust for
which the Custodian serves as custodian) that are held by the
Custodian as custodian. In addition, the Custodian, as
custodian, is entitled to certain transaction charges. Payment
of all amounts owing to the Custodian under the Custodian
Contract shall be made by ALPS, according to the terms of the
Administration Agreement between the Trust and ALPS.
State Street Bank and Trust Company serves as Sub-Transfer
Agent for the Fund. As Sub-Transfer Agent, State Street Bank and
Trust Company has, among other things, agreed to (a) issue and
redeem shares of the Fund; (b) make dividend and other
distributions to shareholders of the Fund; (c) effect transfers
of shares; (d) mail communications to shareholders of the Fund,
including reports to shareholders, dividend and distribution
notices, and proxy materials for meetings of shareholders; and
(e) maintain shareholder accounts.
EXPENSES
Fund expenses include taxes, interest, fees and expenses of
its Trustees and officers, Securities and Exchange Commission
fees, state securities qualification fees, administration fees,
charges of the custodians and shareholder services agent, certain
insurance premiums, outside auditing and legal expenses, costs of
preparing and printing prospectuses for regulatory purposes and
for distribution to existing shareholders, costs of shareholder
reports and corporate meetings and any extraordinary expenses.
The Fund also pays for brokerage fees and commissions (if any) in
connection with the purchase and sale of portfolio securities.
AUDITORS
Deloitte & Touche LLP, with offices at 555 Seventeenth
Street, Suite 3600, Denver, Colorado 80202-3942, serve as
auditors for the Fund. The financial statements included in this
Statement of Additional Information have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report
appearing in the Registration Statement and have been so included
in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
COUNSEL
Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois,
will pass upon certain legal matters relating to the Fund.
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS
From time to time, the yields and the total return of the
Fund may be quoted in advertisements, shareholder reports or
other communications to shareholders. Performance information is
generally available by calling ALPS at 1-800-500-3833.
Yield Calculations
For the approximately 30-day period ending December 31,
1995, the Fund's yield was 5.56%. <R/>
The Fund's yield is calculated by dividing the net
investment income per share (as described below) earned by the
Fund during a 30-day (or one month) period by the maximum
offering price per share on the last day of the period and
annualizing the result on a semi-annual basis by adding one to
the quotient, raising the sum to the power of six, subtracting
one from the result and then doubling the difference. The Fund's
net investment income per share earned during the period is based
on the average daily number of shares outstanding during the
period entitled to receive dividends and includes dividends and
interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed
as follows:
a-b
Yield = 2 [(----- + 1)6 - 1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per share on the last
day of the period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income
on equity securities held by the Fund is recognized by accruing
1/360 of the stated dividend rate of the security each day that
the security is in the Fund. Interest earned on any debt
obligations held by the Fund is calculated by computing the yield
to maturity of each obligation held by the Fund based on the
market value of the obligation (including actual accrued
interest) at the close of business on the last business day of
each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and
dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued
interest) in order to determine the interest income on the
obligation for each day of the subsequent month that the
obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The
maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula
generally calls for amortization of the discount or premium. The
amortization schedule will be adjusted monthly to reflect changes
in the market values of such debt obligations.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market
discount is calculated by using the coupon rate of interest
instead of the yield to maturity. In the case of tax-exempt
obligations that are issued with original issue discount but
which have discounts based on current market value that exceed
the then-remaining portion of the original issue discount (market
discount), the yield to maturity is the imputed rate based on the
original issue discount calculation. On the other hand, in the
case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market
value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity
is based on the market value.
With respect to mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments
of principal and interest ("pay downs"), (a) gain or loss
attributable to actual monthly pay downs are accounted for as an
increase or decrease to interest income during the period; and
(b) the Fund may elect either (i) to amortize the discount and
premium or the remaining security, based on the cost of the
security, to the weighted average maturity date, if such
information is available, or to the remaining term of the
security, if any, if the weighted average date is not available,
or (ii) not to amortize discount or premium on the remaining
security.
Undeclared earned income will be subtracted from the maximum
offering price per share (variable "d" in the formula).
Undeclared earned income is the net investment income which, at
the end of the base period, has not been declared as a dividend,
but is reasonably expected to be and is declared as a dividend
shortly thereafter.
Total Return Calculations
For the fiscal year ended December 31, 1995, the Fund's
annualized total return was 7.80% and for the period from June
27, 1994 (the commencement of investment operations) to December
31, 1995 was 10.01%. <R/>
The Fund computes its average annual total returns by
determining the average annual compounded rates of return during
specified periods that equate the initial amount invested to the
ending redeemable value of such investment. This is done by
dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power
equal to one divided by the number of years (or fractional
portion thereof) covered by the computation and subtracting one
from the result. This calculation can be expressed as follows:
Average Annual Total Return =
Where: ERV = ending redeemable value at the end of
the period covered by the computation of
a hypothetical $1,000 payment made at
the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed
in terms of years.
The Fund computes its aggregate total return by determining
the aggregate rates of return during specified periods that
likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
Aggregate Total Return =
The calculations of average annual total return and
aggregate total return assume the reinvestment of all dividends
and capital gain distributions on the reinvestment dates during
the period and includes all recurring fees charged by the Trust
to all shareholder accounts. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming
complete redemption of the hypothetical investment and the
deduction of all nonrecurring charges at the end of the period
covered by the computations. In addition, the Fund's average
annual total return and aggregate total return quotations reflect
the deduction of the maximum sales load charged in connection
with the purchase of Fund shares.
The Fund may from time to time include in advertisements,
sales literature, communications to shareholders and other
materials ("Materials") a total return figure that is not
calculated according to the formula set forth above in order to
compare more accurately the Fund's performance with other
measures of investment return. For example, in comparing a
Fund's total return with data published by Lipper Analytical
Services, Inc. or with the performance of an index, the Fund may
calculate its aggregate total return for the period of time
specified in the advertisement or communication by assuming the
investment of $10,000 in shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the
reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending
value and by dividing the remainder by the beginning value. The
Fund does not, for these purposes, deduct from the initial value
invested any amount representing sales charges. The Fund will,
however, disclose the maximum sales charge and will also disclose
that the performance data do not reflect sales charges and that
inclusion of sale charges would reduce the performance quoted.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in Materials.
"Compounding" refers to the fact that, if dividends or other
distributions on the Fund investment are reinvested by being paid
in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund
shares received through reinvestment. As a result, the value of
the Fund investment would increase more quickly than if dividends
or other distributions had been paid in cash.
In addition, the Fund may also include in Materials
discussions and/or illustrations of the potential investment
goals of a prospective investor, investment management
strategies, techniques, policies or investment suitability of the
Fund, economic conditions, the relationship between sectors of
the economy and the economy as a whole, various securities
markets, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks,
bonds and Treasury securities. From time to time, Materials may
summarize the substance of information contained in shareholder
reports (including the investment composition of the Fund), as
well as the views of the Investment Adviser as to current market,
economic, trade and interest rate trends, legislative, regulatory
and monetary developments, investment strategies and related
matters believed to be of relevance to the Fund. The Fund may
also include in Materials charts, graphs or drawings which
compare the investment objective, return potential, relative
stability and/or growth possibilities of the Fund and/or other
mutual funds, or illustrate the potential risks and rewards of
investment in various investment vehicles, including but not
limited to, stocks, bonds, Treasury securities and shares of a
Fund and/or other mutual funds. Materials may include a
discussion of certain attributes or benefits to be derived by an
investment in the Fund and/or other mutual funds (such as value
investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic accounting
rebalancing or the advantages and disadvantages of investing in
tax-deferred and taxable investments), shareholder profiles and
hypothetical investor scenarios, timely information on financial
management, tax and retirement planning and investment
alternatives to certificates of deposit and other financial
instruments. Such Materials may include symbols, headlines or
other material which highlight or summarize the information
discussed in more detail therein.
MISCELLANEOUS
As used in this Statement of Additional Information and the
Fund's Prospectus, a "majority of the outstanding shares" of a
Fund or a class of shares means the lesser of (1) 67% of the
shares of the Fund or class represented at a meeting at which the
holders of more than 50% of the outstanding shares of the Fund or
class are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Fund or class.
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
Commercial Paper Ratings
S&P's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the rating categories
used by S&P for commercial paper:
"A-1" - This highest category indicates that the degree of
safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety characteristics are
denoted with a plus sign (+) designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1".
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable
to the adverse effects of changes in circumstances than
obligations carrying higher designations.
"B" - Issues rated "B" are regarded as having only
speculative capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal payments are
not made on the due date, even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having
an original maturity in excess of 9 months. The following
summarizes the rating categories used by Moody's for commercial
paper:
"Prime-1" - Issuers rated Prime-1 (or supporting
institutions) have a superior ability for repayment of senior
short-term obligations. Prime-1 repayment ability will often be
evidenced by many of the following characteristics: leading
market positions in well established industries; high rates of
return on funds employed; conservative capitalization structure
with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high
internal cash generation; and well established access to a range
of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers rated Prime-2 (or supporting
institutions) have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
"Prime-3" - Issuers rated Prime-3 (or supporting
institutions) have an acceptable ability for repayment of senior
short-term obligations. The effect of industry characteristics
and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers rated Not Prime do not fall within any
of the Prime rating categories.
The three rating categories of D&P for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." D&P
employs three designations, "Duff 1+," "Duff 1" and "Duff 1-,"
within the highest rating category. The following summarizes the
rating categories used by D&P for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely
payment. Short-term liquidity, including internal operating
factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely
payment. Liquidity factors are excellent and supported by good
fundamental protection factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk
factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
"Duff 4" - Debt possesses speculative investment
characteristics.
"Duff 5" - Issuer has failed to meet scheduled principal
and/or interest payments.
Fitch Investors Service, Inc. ("Fitch") short-term ratings
apply to debt obligations that are payable on demand or have
original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality.
Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the
"F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be
rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to
near-term adverse changes in financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of
credit issued by a commercial bank.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by S&P for
corporate and municipal debt:
"AAA" - Debt rated "AAA" has the highest rating assigned by
S&P. Capacity to pay interest and repay principal is extremely
strong.
"AA" - Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in small degree.
"A" - Debt rated "A" has a strong capacity to pay interest
and repay principal, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" - Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB", "B", "CCC", "CC", and "C" - Debt rated "BB", "B",
"CCC", "CC", and "C" is regarded as having predominantly
speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest. While such debt will likely
have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse
conditions.
"BB" - Debt rated "BB" has less near-term vulnerability to
default than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied "BBB-" rating.
"B" - Debt rated "B" has a greater vulnerability to default
but currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied "BB" or "BB-" rating.
"CCC" - Debt rated "CCC" has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The "CCC" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "B" or "B-"
rating.
"CC" - The rating "CC" is typically applied to debt
subordinated to senior debt that is assigned an actual or implied
"CCC" rating.
"C" - The rating "C" is typically applied to debt
subordinated to senior debt which is assigned an actual or
implied "CCC-" debt rating. The "C" rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
"CI" - The rating "CI" is reserved for income bonds on which
no interest is being paid.
"D" - Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during such grace period. The "D" rating also will be used upon
the filing of a bankruptcy petition if debt service payments are
jeopardized.
"Plus (+) or Minus (-)" Ratings from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show relative
standing within the major categories.
"c" The letter "c" indicates that the holder's option to
tender the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option documents.
"L" The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the underlying
deposit collateral is federally insured and the interest is
adequately collateralized. In the case of certificates of
deposit, the letter "L" indicates that the deposit, combined with
other deposits being held in the same right and capacity, will be
honored for principal and accrued predefault interest up to the
federal insurance limits within 30 days after closing of the
insured institution or, in the event that the deposit is assumed
by a successor insured institution, upon maturity.
"p" The letter "p" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the
project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should
exercise his own judgement with respect to such likelihood and
risk.
"*" Continuance of the rating is contingent upon S&P's
receipt of an executed of the escrow agreement or closing
documentation confirming investments and cash flows.
"r" The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to
noncredit risks. Examples of such obligations are: securities
whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The
absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in
total return.
"NR" indicates that no public rating has been requested,
that there is insufficient information on which to base a rating,
or that S&P does not rate a particular type of obligation as a
matter of policy.
The following summarizes the ratings used by Moody's for
corporate and municipal long-term debt:
"Aaa" - Bonds which are rated "Aaa" are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
"Aa" - Bonds which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear
somewhat larger than in "Aaa" securities.
"A" - Bonds which are rated "A" possess many favorable
investment attributes and are to be considered as upper-medium-
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
"Baa" - Bonds which are rated "Baa" are considered as
medium-grade-obligations, (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and
principal ("Ba" indicates some speculative elements; "B"
indicates a general lack of characteristics of desirable
investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C"
bonds may be in default.
Con.(...) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned
in operation experience, (c) rentals which begin when facilities
are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis
of condition.
Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa to B. The modifier 1
indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the company ranks in the lower
end of its generic rating category.
The following summarizes the ratings used by D&P for
corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality.
Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
"A" - Debt possesses protection factors which are average
but adequate. However, risk factors are more variable and
greater in periods of economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for
prudent investment. Considerable variability in risk is present
during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one
of these ratings is considered to be below investment grade.
Although below investment grade, debt rated "BB" is deemed likely
to meet obligations when due. Debt rated "B" possesses the risk
that obligations will not be met when due. Debt rated "CCC" is
well below investment grade and may be in default or have
considerable uncertainty as to timely payment of principal,
interest or preferred dividends. Debt rated "DD" is a defaulted
debt obligation, and the rating "DP" represents preferred stock
with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the
addition of a plus (+) or minus (-) sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to
be affected by reasonably foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because bonds rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
"F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds
that possess one of these ratings are considered by Fitch to be
speculative investments. The ratings "BB" to "C" represent
Fitch's assessment of the likelihood of timely payment of
principal and interest in accordance with the terms of obligation
for bond issues not in default. For defaulted bonds, the rating
"DDD" to "D" is an assessment of the ultimate recovery value
through reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by
the addition of a plus (+) or minus (-) sign to show relative
standing within these major rating categories.
Municipal Note Ratings
An S&P rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The
following summarizes the ratings used by S&P for municipal notes:
"SP-1" - Strong capacity to pay principal and interest.
Issues determined to possess very strong characteristics are
given a plus (+) designation.
"SP-2" - Satisfactory capacity to pay principal and
interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
"SP-3" - Speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG")
and variable rate demand obligations are designated Variable
Moody's Investment Grade ("VMIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk.
The following summarizes the ratings by Moody's for short-term
notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is present strong protection by established cash flows,
superior liquidity support or demonstrated broad-based access to
the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality.
Margins of protection are ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable
quality. All security elements are accounted for but there is
lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate
quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
"SG" - This designation denotes speculative quality and
lacks margins of protection.
Fitch uses the short-term ratings described under Commercial
Paper Ratings for municipal notes.
To the Board of Trustees and Shareholders of Duff & Phelps Enhanced
Reserves Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments of Duff & Phelps Enhanced
Reserves Fund as of December 31, 1995, the related statements of
operations for the year ended December 31, 1995 and changes in net
assets for the year ended December 31, 1995 and the period ended
December 31, 1994, and the financial highlights for the period June 27,
1994 (commencement of operations) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
December 31, 1995 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Duff
& Phelps Enhanced Reserves Fund at December 31, 1995, and the results of
its operations, the changes in its net assets, and the financial
highlights for each of the respective stated periods, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 19, 1996
ENHANCED RESERVES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS
Investments, at value (cost $134,385,292)- see accompanying
statement $135,533,181
Cash 1,621
Interest receivable 1,653,447
Deferred organizational costs, net of accumulated amortization 164,853
Other 4,836
___________________________________________________________________________
Total Assets 137,357,938
___________________________________________________________________________
LIABILITIES
Payables:
Dividends 707,144
Duff & Phelps Investment Management Co. 235,102
Other 35,459
___________________________________________________________________________
Total Liabilities 977,705
___________________________________________________________________________
NET ASSETS $136,380,233
___________________________________________________________________________
COMPOSITION OF NET ASSETS - Note 1
Paid-in capital $134,937,709
Undistributed net investment income 532
Accumulated net realized gain from investment transactions 294,103
Net unrealized appreciation 1,147,889
___________________________________________________________________________
NET ASSETS $136,380,233
___________________________________________________________________________
Shares of beneficial interest outstanding 13,529,224
___________________________________________________________________________
Net asset value and redemption price per share $10.08
___________________________________________________________________________
See Notes to Financial Statements.
ENHANCED RESERVES FUND
STATEMENT OF INVESTMENTS
December 31, 1995
Face Amount Market Value Bond Rating+
CORPORATE BONDS 55.04%
Asset-Backed 25.10%
$4,486,508 Chase Manhattan Grantor,
1995-A, ABS 6.00%, 09/17/01 $4,520,242 AAA
5,000,000 First Chicago Master
Trust II, Ser. 93-F A,
6.30%, 02/15/00 (1) 5,023,195 AAA
2,910,501 Ford Grantor Trust 95-A, ABS
5.90%, 05/15/00 2,927,670 AAA
4,000,000 Fremont Small Business
Administration, Ser. 93a,
ABS, 6.408%, 03/16/98 (1) 4,006,876 AAA
1,800,000 Fremont Small Business
Administration, Ser. 93b,
ABS, 6.438%, 10/15/99 (1) 1,805,506 AAA
556,399 GreenTree Financial, Ser.
94-6A1, 6.35%, 1/15/20 558,079 AAA
2,708,519 GreenTree Financial, Ser.
95-A1, 7.00%, 4/15/20 2,731,804 AAA
2,500,000 MBNA Master Credit Card
Trust 94-B A, ABS
5.49%, 01/15/02 (1) 2,508,648 AAA
2,500,000 MBNA Master Trust, Ser.
94-D-A, 5.86%, 03/15/00 (1) 2,500,000 AAA
4,000,000 Standard Credit Card Master
Trust, Ser. 95-4A1, 5.975%,
02/15/00 (1) 4,001,076 AAA
3,566,383 Western Financial, Ser.
95-2 A-1, 7.10%, 07/01/00 3,647,978 AAA
__________
34,231,074
__________
Chemicals 1.13%
_________________________________________________________________________
1,500,000 DuPont Corp,
8.45%, 10/15/96 1,535,989 AA-
__________
_________________________________________________________________________
Financial 25.80%
3,675,000 AT&T Capital Corporation,
7.96%, 12/27/96 3,761,664 A
5,000,000 Associates Corp N.A.
6.625%, 05/15/98 5,121,080 AA-
1,000,000 Citicorp MTN Sr Notes,
9.90%, 03/14/96 1,009,115 A+
5,000,000 CIT Group Holdings
5.70%, 12/15/98 5,005,315 AA-
5,714,000 Commercial Credit Co.
8.00%, 09/01/96 5,807,390 A+
6,300,000 General Electric Capital Corp.
5.80%, 10/09/98 (1) 6,310,477 AAA
4,500,000 General Motors Acceptance Corp,
7.50%, 11/04/97 4,647,807 A-
3,500,000 Lehman Brothers Holdings,
9.750%, 04/01/96 3,532,424 A
__________
35,195,272
__________
Food, Beverage & Tobacco 3.01%
__________________________________________________________________________
$4,000,000 Phillip Morris Co.,
8.75%, 12/01/96 $4,109,852 A
__________
TOTAL CORPORATE BONDS
(Cost $74,549,122) 75,072,187
__________
U.S. Government Agencies 8.86%
__________________________________________________________________________
1,957,876 Federal National Mortgage
Assn, #104878, ARM, 7.83%,
03/01/20 (1) 2,013,553 AAA
10,000,000 Federal Home Loan Mortgage,
15 Year Gold 6.50%, 1/1/11 10,068,750 AAA
__________
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $12,017,902) 12,082,303
__________
U.S. GOVERNMENT TREASURIES 20.80%
U.S. Treasury Notes 20.80%
__________________________________________________________________________
7,000,000 7.50%, 01/31/97 7,170,625 AAA
5,000,000 5.875%, 07/31/97 5,053,125 AAA
5,000,000 7.25%, 02/15/98 5,200,000 AAA
5,000,000 6.75%, 04/30/00 5,264,055 AAA
5,000,000 7.50%, 02/15/05 5,676,555 AAA
__________
TOTAL U.S. GOVERNMENT TREASURIES
(Cost $27,803,937) 28,364,360
__________
COMMERCIAL PAPER 12.51%
Finance 12.51%
__________________________________________________________________________
5,000,000 American Express Credit
Corp, CP 5.703%, 2/08/96 5,016,633 D1
5,000,000 John Deere Capital Corp
5.691%, 01/18/96 5,004,742 D1
7,000,000 Norwest Financial CP
5.752%, 01/25/96 7,036,909 D1
__________
TOTAL COMMERCIAL PAPER
(Cost $17,058,284) 17,058,284
__________
REPURCHASE AGREEMENTS 2.17%
__________________________________________________________________________
2,955,000 State Street Repo. 4.25%,
1/02/96 Collateral:
$2,700,000 U.S. Treasury Note
7.50%, 05/15/02 @ 111.703 2,956,047 AAA
__________
Total Repurchase Agreements
(Cost $2,956,047) 2,956,047
__________
Market Value
TOTAL INVESTMENTS
(Cost $134,385,292) 99.38% $135,533,181
Other Assets in Excess of Liabilities 0.62% 847,052
_________________________
NET ASSETS 100.00% $136,380,233
_________________________
(1) Variable rate security. Reported rate is the effective rate on
December 31, 1995
+ Unaudited.
See Notes to Financial Statements.
Enhanced Reserves Fund
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
INVESTMENT INCOME
Interest $7,693,000
___________________________________________________________________________
EXPENSES
Investment advisory fee 183,854
Administrative services (Note 3) 183,854
Legal 31,804
Amortization of organization costs 47,100
Insurance 6,227
Registration 28,945
Trustee fees 26,384
Printing 3,024
___________________________________________________________________________
Total Expenses 511,192
___________________________________________________________________________
Expenses waived by investment advisor (83,733)
___________________________________________________________________________
Net Expenses 427,459
___________________________________________________________________________
NET INVESTMENT INCOME 7,265,541
___________________________________________________________________________
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 586,169
___________________________________________________________________________
Unrealized appreciation (depreciation) of investments:
Beginning of period (261,542)
End of period 1,147,889
___________________________________________________________________________
Net change in unrealized appreciation (depreciation) 1,409,431
___________________________________________________________________________
Net realized and unrealized gain on investments 1,995,600
___________________________________________________________________________
Net increase in net assets resulting from operations $9,261,141
___________________________________________________________________________
See Notes to Financial Statements.
ENHANCED RESERVES FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the For the
Year Ended Period Ended
December 31, December 31,
1995 1994 (1)
___________ ____________
FROM INVESTMENT ACTIVITIES
Net investment income, $7,265,541 $1,334,485
Net realized gain (loss) on investments 586,169 (75,459)
Net change in unrealized appreciation (depreciation) 1,409,431 (261,542)
_____________________________________________________________________________
Net increase in net assets resulting from operations 9,261,141 997,484
_____________________________________________________________________________
Dividends to shareholders from net investment
income (7,264,990) (1,334,504)
Distributions to shareholders from net
realized gain on investments (216,607) 0
_____________________________________________________________________________
Change in net assets derived from investment
activities 1,779,544 (337,020)
_____________________________________________________________________________
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 347,741,556 85,182,744
Net asset value of shares issued to shareholders
from reinvestment of dividends 7,095,970 955,111
_____________________________________________________________________________
354,837,526 86,137,855
Cost of shares redeemed (304,797,452) (1,340,220)
_____________________________________________________________________________
Change in net assets from beneficial
interest transactions 50,040,074 84,797,635
_____________________________________________________________________________
NET INCREASE IN NET ASSETS 51,819,618 84,460,615
NET ASSETS:
Beginning of period 84,560,615 100,000(2)
_____________________________________________________________________________
End of period (including (over)/undistributed
net investment income of $532 and $(19),
respectively) $136,380,233 $84,560,615
_____________________________________________________________________________
(1) Operations commenced on June 27, 1994.
(2) Initial Capitalization.
See Notes to Financial Statements.
ENHANCED RESERVES FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the periods indicated:
For the For the
Year Ended Period Ended
December 31, December 31,
1995 1994 (1)
___________ ____________
Net asset value - beginning of period $9.94 $10.00
_____________________________________________________________________________
Income from investment operations
Net investment income 0.60 .26
Net realized and unrealized gain (loss) on investments 0.16 (.06)
_____________________________________________________________________________
Total income from investment operations 0.76 .20
_____________________________________________________________________________
Dividends and distributions to shareholders
Dividends from net investment income (0.60) (.26)
Distributions from net realized gain on investments (0.02) -
_____________________________________________________________________________
Total dividends and distributions to shareholders (0.62) (.26)
_____________________________________________________________________________
Net asset value - end of period $10.08 $9.94
_____________________________________________________________________________
Total return 7.80% 4.02%(2)
=============================================================================
Ratios/Supplemental Data:
Net assets, end of period (000) $136,380 $84,561
_____________________________________________________________________________
Ratio of expenses to average net assets 0.35% .34%(2)
_____________________________________________________________________________
Ratio of net investment income to average net assets 5.93% 5.24%(2)
_____________________________________________________________________________
Ratio of expenses to average net assets
without fee waivers 0.42% .42%(2)
_____________________________________________________________________________
Ratio of net investment income to average
net assets without fee waivers 5.86% 5.17%(2)
_____________________________________________________________________________
Portfolio turnover rate (3) 190.37% 134.29%(2)
_____________________________________________________________________________
(1) Operations commenced on June 27, 1994.
(2) Annualized.
(3) A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities
(excluding securities with maturity date of one year or less at the
time of acquisition) for the period and dividing it by the monthly
average of the market value of such securities during the period.
Purchases and sales of investment securities (excluding short-term
securities) for the year ended December 31, 1995 were $246,328,050
and $170,785,915, respectively.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Duff & Phelps Mutual Funds (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as a diversified
open-end management investment company. The Duff & Phelps
Enhanced Reserves Fund (the "Fund"), represents a separate class
of shares of beneficial interest of the Trust, which is
organized as a Massachusetts business trust.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with
generally accepted accounting principles.
Investment Valuation: Securities of the Fund are valued at
4:00 p.m. (EST) on each trading day. The Fund's investments
are valued at the last sales price of the day or where market
quotations are not readily available, a fair market value is
determined in good faith by or under the direction of the Board
of Trustees. Short-term securities having a remaining maturity of
60 days or less are valued at amortized cost which approximates
market value.
Federal Income Taxes: It is the Fund's policy to comply with
provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income
to shareholders. Therefore, no Federal Income Tax provision is
required.
Repurchase Agreements: The Funds' custodian takes possession
of the collateral pledged for investments in repurchase agreements.
The underlying collateral is valued daily on a mark-to-market basis
to ensure that value, including accrued interest, is at least 100%
of the repurchase price. In the event of default on the obligation
to repurchase, the Funds have the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default by or bankruptcy of
the other party to the agreement, realization and/or retention of
the collateral may be subject to legal proceedings.
Organization Costs: The Fund has deferred certain
organizational costs. Such costs are being amortized over a 60
month period from the commencement of operations. In the event
that all or part of the Investment Advisor's initial investment
in shares of the Fund is withdrawn during the amortization period,
the redemption proceeds will be reduced by the proportionate
amount of the unamortized organization costs represented by the
ratio that the number of shares redeemed bears to the number of
initial shares outstanding at the time of each redemption.
Other: Investment transactions are accounted for on the date
the investments are purchased or sold (trade date). Dividends from
net investment income are declared daily and paid monthly.
Distributions of net realized gains, if any, are declared at
least once a year. Realized gains and losses from investment
transactions are reported on an identified cost basis which is
the same basis the Fund uses for Federal Income Tax purposes.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
2. SHARES OF BENEFICIAL INTEREST
On December 31, 1995, there was an unlimited number of no par
value shares of beneficial interest authorized. Transactions in
shares of beneficial interest were as follows:
For the Year For the Period
Ended December 31, 1995 Ended December 31, 1994
Shares Sold 34,673,071 8,535,400
Shares Reinvested 708,262 95,683
Total 35,381,333 8,631,083
Shares Redeemed 30,358,450 134,742
Net Increase 5,022,883 8,496,341
3. INVESTMENT ADVISORY FEES, ADMINISTRATION FEES AND OTHER
RELATED PARTY TRANSACTIONS
On November 1, 1995, Duff & Phelps Corporation and Phoenix
Securities Group, Inc. an indirect wholly-owned subsidiary of
Phoenix Home Life Mutual Insurance Company, merged. Upon
completion of that merger, Duff & Phelps Corporation was
renamed Phoenix Duff & Phelps. At the completion of the merger,
the Fund entered into a new investment advisory agreement with
Duff & Phelps Investment Management Co., a wholly-owned subsidiary
of Phoenix Duff & Phelps. This agreement has been approved by the
Fund's Board of Directors and shareholders and contains terms
and conditions similar to the prior agreement.
Pursuant to its advisory agreement with the Fund, the
Investment Advisor is entitled to an advisory fee,
computed daily and payable monthly at an annual rate of .15
percent of the average net assets. Duff & Phelps voluntarily
waived a portion of its advisory fee for the year ended
December 31, 1995.
ALPS Mutual Funds Services, Inc. ("ALPS") serves as the Fund's
administrator. ALPS is entitled to receive a fee from the Fund
for its administrative services computed daily and payable monthly,
at an annual rate of .15 percent of average daily net assets on
the first $1 billion, .125 percent on the next $500 million and
.10 percent on assets in excess of $1.5 billion. ALPS services as
administrator include: fund accounting, daily pricing, licensing
and registration, shareholder servicing, transfer agency, fund
ratings and training.
4. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
As of December 31, 1995:
Gross Appreciation (excess of value over cost) 1,150,638
Gross Depreciation (excess of cost over value) (2,749)
Net unrealized appreciation 1,147,889
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits:
(a) Financial Statements for the Duff & Phelps Enhanced
Reserves Fund:
Included in Part A of the Registration Statement:
Financial Highlights
Included in Part B of the Registration Statement:
Independent Auditors' Report
Financial Statements
Notes to Financial Statements
No financial statements have been included for the
three OTHER series of the Registrant, Duff & Phelps
High Yield Fund, Duff & Phelps Opportunity Income
Fund and Duff & Phelps International Equity Fund.
(b) Exhibits
(1) Amended and Restated Declaration of Trust
of the Registrant dated January 27,
1994(1)
(2) Amended By-laws of the Registrant(1)
(3) None
(4) Specimen copy of share certificate for
the:
(4)(a) Enhanced Reserves Fund(2)
(4)(b) High Yield Fund*
(4)(c) Opportunity Income Fund*
(4)(d) International Equity Fund*
(5)(a) Investment Advisory Agreement between
Registrant and Duff & Phelps
Investment Management Co. ("DPIM")
relating to the:
(5)(a)(i) Enhanced Reserves Fund**
(5)(a)(ii) High Yield Fund*
(5)(a)(iii) Opportunity Income Fund*
(5)(a)(iv) International Equity Fund*
(5)(b) Service Agreement among Registrant,
DPIM, Duff & Phelps Corporation and
Duff & Phelps/MCM Investment Research
Co. relating to the:
(5)(b)(i) Enhanced Reserves Fund**
(5)(b)(ii) High Yield Fund*
(5)(b)(iii) Opportunity Income Fund*
(5)(b)(iv) International Equity Fund*
(6) Distribution Agreement between Registrant
and ALPS Mutual Funds Services, Inc.
relating to the:
(6)(a) Enhanced Reserves Fund(2)
(6)(b) High Yield Fund*
(6)(c) Opportunity Income Fund*
(6)(d) International Equity Fund*
(7) None
(8) Custodian Agreement between Registrant and
State Street Bank and Trust Company
relating to the:
(8)(a) Enhanced Reserves Fund(2)
(8)(b) High Yield Fund*
(8)(c) Opportunity Income Fund*
(8)(d) International Equity Fund*
(9)(a) Administration Agreement between
Registrant and ALPS Mutual Funds
Services, Inc. relating to the:
(9)(a)(i) Enhanced Reserves Fund(2)
(9)(a)(ii) High Yield Fund*
(9)(a)(iii) Opportunity Income Fund*
(9)(a)(iv) International Equity Fund*
(9)(b) Transfer Agent Agreement between
Registrant and ALPS Mutual Funds
Services, Inc. relating to the:
(9)(b)(i) Enhanced Reserves Fund(2)
(9)(b)(ii) High Yield Fund*
(9)(b)(iii) Opportunity Income Fund*
(9)(b)(iv) International Equity Fund*
(9)(c) Sub-Transfer Agent Agreement between
ALPS Mutual Fund Services, Inc. and
State Street Bank and Trust Company
relating to the:
(9)(c)(i) Enhanced Reserves Fund(2)
(9)(c)(ii) High Yield Fund*
(9)(c)(iii) Opportunity Income Fund*
(9)(c)(iv) International Equity Fund*
(9)(d) Bookkeeping and Pricing Agreement
between Registrant and ALPS Mutual
Funds Services, Inc. relating to the:
(9)(d)(i) Enhanced Reserves Fund(2)
(9)(d)(ii) High Yield Fund*
(9)(d)(iii) Opportunity Income Fund*
(9)(d)(iv) International Equity Fund*
(9)(e) Sub-Bookkeeping and Pricing Agreement
between ALPS Mutual Funds Services,
Inc. and American Data Services, Inc.
relating to the:
(9)(e)(i) Enhanced Reserves Fund(2)
(9)(e)(ii) High Yield Fund*
(9)(e)(iii) Opportunity Income Fund*
(9)(e)(iv) International Equity Fund*
(10) Opinion and Consent of Skadden, Arps,
Slate, Meagher & Flom relating to the:
(10)(a) Enhanced Reserves Fund(1)
(10)(b) High Yield Fund*
(10)(c) Opportunity Income Fund*
(10)(d) International Equity Fund*
(11) Consent of Deloitte & Touche LLP relating
to the:
(11)(a) Enhanced Reserves Fund**
(12) None
(13) Subscription Agreement between Registrant
and Duff & Phelps Corporation(2)
(14) None
(15) None
(16) Schedule for Computation of Performance
Quotations relating to the:
(16)(a) Enhanced Reserves Fund**
(19) Powers of Attorney**
(27) Financial Data Schedule relating to:
(27)(a) Enhanced Reserves Fund**
____________________
(1) Incorporated by reference to Pre-Effective Amendment
No. 2 to Registrant's Registration Statement filed
February 24, 1994. File Nos. 33-71980 and 811-8164.
(2) Incorporated by reference to Post-Effective
Amendment No. 1 to Registrant's Registration
Statement filed September 26, 1994. File Nos. 33-
71980 and 811-8164.
* To be filed by further amendment.
** Filed herewith.
ITEM 25. Persons Controlled by or under Common Control
with Registrant.
As of the date hereof, to the best knowledge of the
Registrant, no person is directly or indirectly
controlled by or under common control with the
Registrant.
ITEM 26. Number of Holders of Securities.
As of March 31, 1996
Number of
Title of Class Record Holders
______________ ______________
Enhanced Reserves Fund 35
High Yield Fund 0
Opportunity Income Fund 0
International Equity Fund 0
ITEM 27. Indemnification.
Please see Article 5 of the Registrant's Declaration
of Trust (incorporated herein by reference).
Registrant's trustees and officers are covered by an
Errors and Omissions Policy. Sections 6 and 7 of the
Investment Advisory Agreement between the Registrant and
Duff & Phelps Investment Management Co. (the "Adviser")
provides that, in the absence of willful malfeasance, bad
faith, gross negligence or reckless disregard of the
obligations or duties under the Investment Advisory
Agreement on the part of the Adviser, the Adviser shall
not be liable to the Registrant or to any shareholder for
any act or omission in the course of or connected in any
way with rendering services or for any losses that may be
sustained in the purchase, holding or sale of any
security. Sections 1.9 through 1.11 of the Distribution
Agreement between the Registrant and ALPS Mutual Funds
Services, Inc. ("Distributor") provides that the
Registrant shall indemnify the Distributor and certain
persons related thereto for any loss or liability arising
from any alleged misstatement of a material fact (or
alleged omission to state a material fact) contained in,
among other things, the Registration Statement or
Prospectus except to the extent the misstated fact or
omission was made in reliance upon information provided
by or on behalf of such Distributor. (See the
Distribution Agreement.)
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, directors, officers and controlling persons of
the Registrant and the investment adviser and distributor
pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is,
therefore, enforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
a trustee, director, officer, or controlling person of
the Registrant and the principal underwriter in
connection with the successful defense or any action,
suit or proceeding) is asserted against the Registrant by
such trustee, director, officer or controlling person or
the Distributor in connection with the shares being
registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. Business and Other Connections of Investment
Adviser.
See "Management of the Fund--Investment Adviser" in
the Prospectus and "Management of the Fund" in the
Statement of Additional Information for information
regarding the business of the Adviser. For information
as to the business, profession, vocation or employment of
a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form
ADV (SEC File No. 801-14813) filed under the Investment
Advisers Act of 1940, incorporated herein by reference.
ITEM 29. Principal Underwriter.
(a) The sole principal underwriter for the
Registrant is ALPS Mutual Funds Services, Inc., which
acts as the distributor for the following investment
companies: Westcore Trust, FGIC Public Trust, Kennebec
Trust, First Funds and the Countrybaskets Index Fund
Inc..
(b) To the best of Registrant's knowledge, the
directors and executive officers of ALPS Mutual Funds
Services, Inc., the distributor for Registrant, are as
follows:
Position and
Name and Principal Positions and Offices with
Business Address Offices with ALPS Registrant
W. Robert Alexander Chairman, President and Director None
Arthur J. L. Lucey Secretary, Vice President None
and Director
Mary Austine Director None
John W. Hannon, Jr. Director None
Asa W. Smith Director None
Rick Pedersen Director None
Gordon W. Hobgood Director None
Chris Woessner Director None
Mark A. Pougnet Chief Financial Officer Treasurer
Edmund J. Burke Senior Vice President and None
National Sales Director
The principal business address for each of the above
directors is 370 Seventeenth Street, Suite 2700, Denver,
Colorado 80202.
ITEM 30. Location of Accounts and Records.
All accounts, books and other documents required to
be maintained by the Registrant by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder
will be maintained at the offices of the Registrant
located at 370 Seventeenth Street, Suite 2700, Denver,
Colorado 80202, or its investment adviser, Duff & Phelps
Investment Management Co., 55 East Monroe Street,
Chicago, Illinois 60610, or the custodian, State Street
Bank and Trust Company, 1776 Heritage Drive, North
Quincy, MA. All such accounts, books and other documents
required to be maintained by the principal underwriter
will be maintained at ALPS Mutual Funds Services, Inc.,
370 Seventeenth Street, Suite 2700, Denver, Colorado
80202.
ITEM 31. Management Services.
None.
ITEM 32. Undertakings.
(a) Not applicable.
(b) Registrant undertakes to file a post-effective
amendment using financial statements, which
need not be certified, within four to six
months from the effective date of the
Registrant's Registration Statement with
respect to the three new series of the
Registrant: Duff & Phelps High Yield Fund,
Duff & Phelps Opportunity Income Fund and Duff
& Phelps International Equity Fund
(c) Registrant undertakes to furnish to each person
to whom a prospectus is delivered a copy of the
Registrant's latest annual report to
shareholders upon request and without charge if
the information called for by Item 5A of Form
N-1A is contained in such annual report.
(d) Registrant hereby undertakes that if it does
not hold annual meetings it will abide by
Section 16(c) of the 1940 Act which provides
certain rights to stockholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago,
and State of Illinois, on the 25th day of April, 1996.
DUFF & PHELPS MUTUAL FUNDS
By: /s/ Calvin J. Pedersen
__________________________________
Calvin J. Pedersen, Chairman, Trustee,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, this Amendment to the
Registration Statement has been signed by the following persons
in the capacities and on the date indicated:
SIGNATURE TITLE DATE
/s/ Calvin J. Pedersen Chairman, April 25, 1996
______________________ Trustee, President and Chief
Calvin J. Pedersen Executive Officer
/s/ E. Virgil Conway* Trustee April 25, 1996
_______________________
E. Virgil Conway
/s/ William W. Crawford* Trustee April 25, 1996
_________________________
William W. Crawford
/s/ William N. Georgeson* Trustee April 25, 1996
__________________________
William N. Georgeson
/s/ Everett L. Morris* Trustee April 25, 1996
__________________________
Everett L. Morris
/s/ Richard A. Pavia* Trustee April 25, 1996
__________________________
/s/ Mark Pougnet* Treasurer and Chief April 25, 1996
__________________________ Financial Officer
Mark Pougnet
___________________
* Signed by Calvin J. Pedersen pursuant to a Power of Attorney.
/s/ Calvin J. Pedersen April 25, 1996
______________________
Calvin J. Pedersen
Attorney-in-Fact
DUFF& PHELPS MUTUAL FUNDS
EXHIBIT INDEX
Exhibit Sequentially
Number Item Numbered
_______ ____ ____________
(1) Amended and Restated Declaration of Trust of
the Registrant dated January 27, 1994(1)
(2) Amended By-laws of the Registrant(1)
(4) Specimen copy of share certificate for the:
(4)(a) Enhanced Reserves Fund(2)
(4)(b) High Yield Fund*
(4)(c) Opportunity Income Fund*
(4)(d) International Equity Fund*
(5)(a) Investment Advisory Agreement between Registrant
and Duff & Phelps Investment Management Co.
("DPIM") relating to the:
(5)(a)(i) Enhanced Reserves Fund**
(5)(a)(ii) High Yield Fund*
(5)(a)(iii) Opportunity Income Fund*
(5)(a)(iv) International Equity Fund*
(5)(b) Service Agreement among Registrant, DPIM, Duff
& Phelps Corporation and Duff & Phelps/MCM
Investment Research Co. relating to the:
(5)(b)(i) Enhanced Reserves Fund**
(5)(b)(ii) High Yield Fund*
(5)(b)(iii) Opportunity Income Fund*
(5)(b)(iv) International Equity Fund*
(6) Distribution Agreement between Registrant and
ALPS Mutual Funds Services, Inc. relating to
the:
(6)(a) Enhanced Reserves Fund(2)
(6)(b) High Yield Fund*
(6)(c) Opportunity Income Fund*
(6)(d) International Equity Fund*
(8) Custodian Agreement between Registrant and
State Street Bank and Trust Company relating
to the:
(8)(a) Enhanced Reserves Fund(2)
(8)(b) High Yield Fund*
(8)(c) Opportunity Income Fund*
(8)(d) International Equity Fund*
(9)(a) Administration Agreement between
Registrant and ALPS Mutual Funds
Services, Inc. relating to the:
(9)(a)(i) Enhanced Reserves Fund(2)
(9)(a)(ii) High Yield Fund*
(9)(a)(iii) Opportunity Income Fund*
(9)(a)(iv) International Equity Fund*
(9)(b) Transfer Agent Agreement between
Registrant and ALPS Mutual Funds
Services, Inc. relating to the:
(9)(b)(i) Enhanced Reserves Fund(2)
(9)(b)(ii) High Yield Fund*
(9)(b)(iii) Opportunity Income Fund*
(9)(b)(iv) International Equity Fund*
(9)(c) Sub-Transfer Agent Agreement
between ALPS Mutual Fund
Services, Inc. and State Street
Bank and Trust Company relating to the:
(9)(c)(i) Enhanced Reserves Fund(2)
(9)(c)(ii) High Yield Fund*
(9)(c)(iii) Opportunity Income Fund*
(9)(c)(iv) International Equity Fund*
(9)(d) Bookkeeping and Pricing
Agreement between Registrant and
ALPS Mutual Funds Services, Inc.
relating to the:
(9)(d)(i) Enhanced Reserves Fund(2)
(9)(d)(ii) High Yield Fund*
(9)(d)(iii) Opportunity Income Fund*
(9)(d)(iv) International Equity Fund*
(9)(e) Sub-Bookkeeping and Pricing
Agreement between ALPS Mutual Funds
Services, Inc. and American Data
Services, Inc. relating to the:
(9)(e)(i) Enhanced Reserves Fund(2)
(9)(e)(ii) High Yield Fund*
(9)(e)(iii) Opportunity Income Fund*
(9)(e)(iv) International Equity Fund*
(10) Opinion and Consent of Skadden, Arps, Slate,
Meagher & Flom relating to the:
(10)(a) Enhanced Reserves Fund(1)
(10)(b) High Yield Fund*
(10)(c) Opportunity Income Fund*
(10)(d) International Equity Fund*
(11) Consent of Deloitte & Touche LLP relating to
the:
(11)(a) Enhanced Reserves Fund**
(13) Subscription Agreement between Registrant and
Duff & Phelps Corporation(2)
(16) Schedule for Computation of Performance
Quotations relating to the:
(16)(a) Enhanced Reserves Fund**
(19) Powers of Attorney**
(27) Financial Data Schedule
(27)(a) Enhanced Reserves Fund**
____________________
(1) Incorporated by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement filed February 24, 1994.
File Nos. 33-71980 and 811-8164.
(2) Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement filed September 26, 1994.
File Nos. 33-71980 and 811-8164.
* To be filed by further amendment.
** Filed herewith.
EXHIBIT (5)(a)(i)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT, dated as of
September 7, 1995, by and between DUFF & PHELPS MUTUAL
FUNDS (the "Trust"), a Massachusetts business trust, on
behalf of its portfolio, DUFF & PHELPS ENHANCED RESERVES
FUND (the "Fund"), and DUFF & PHELPS INVESTMENT
MANAGEMENT CO. (the "Adviser"), an Illinois corporation;
In consideration of the mutual promises and
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby
acknowledged, it is agreed by and between the parties
hereto as follows:
1. Retention of Adviser by Fund
(a) The Fund hereby employs the Adviser
to act as the investment adviser for, and to manage the
investment and reinvestment of assets of, the Fund in
accordance with the Fund's investment objective and
policies and limitations, and to administer its affairs
to the extent requested by, and subject to the review and
supervision of, the Trustees of the Trust for the period
and upon the terms set forth herein. The Fund shall be
subject to all applicable restrictions of applicable laws
and of the Trust's Declaration of Trust, as filed with
the Secretary of State of the Commonwealth of
Massachusetts on October 27, 1993 and all amendments
thereto (such Declaration of Trust, as presently in
effect and as it shall from time to time be amended, is
hereinafter called the "Declaration of Trust"), the
Trust's By-Laws and resolutions of the Trustees of the
Trust, all as may from time to time be in force and
delivered or made available to the Adviser.
(b) The Fund has furnished the Adviser
with copies properly certified or authenticated of each
of the following:
(i) The Declaration of Trust;
(ii) The Trust's By-Laws and
amendments thereto;
(iii) The Fund's Registration
Statement on Form N-1A under the Securities Act
of 1933 as amended (File No. 33-71980) and
under the Investment Company Act of 1940 as
amended (the "1940 Act"); and
(iv) The most recent prospectus
and statement of additional information of the
Fund.
The Fund will furnish the Adviser from time to time with
copies of all amendments of or supplements to the
foregoing, if any.
2. Adviser's Acceptance of Employment; Duties
and Obligations of the Adviser.
The Adviser agrees, all as more fully set forth
herein, to act as investment adviser to the Fund with
respect to the investment of the Fund's assets and to
supervise and arrange the purchase of securities for and
the sale of securities held in the investment portfolio
of the Fund.
(a) Subject to the succeeding provisions
of this Section and subject to the direction and control
of the Trust's Trustees, the Adviser shall: (i) act as
investment adviser for and supervise and manage the
investment and reinvestment of the Fund's assets and in
connection therewith have complete discretion in
purchasing and selling securities and other assets for
the Fund and in voting, exercising consents and
exercising all other rights appertaining to such
securities and other assets on behalf of the Fund; (ii)
supervise continuously the investment program of the Fund
and the composition of its investment portfolio; (iii)
supply investment research and portfolio management of
the Fund; (iv) furnish such offices and necessary
facilities and equipment to the Fund as requested by the
Fund; (v) render periodic reports to the Trustees; (vi)
permit any of its officers or employees to serve without
compensation as trustee, officer or agent of the Trust or
Fund if duly elected or appointed to such positions and
subject to his or her individual consent and to any
limitation imposed by law; and (vii) arrange, subject to
the provisions of Section 3 herein, for the purchase and
sale of securities and other assets held in the
investment portfolio of the Fund.
(b) Without limiting the generality of
the duties foregoing, the Adviser agrees that it shall:
(i) update the Fund's cash availability throughout the
day as required; (ii) maintain historical tax lots for
each portfolio security held by the Fund; (iii) transmit
trades to the Fund's custodian for proper settlement;
(iv) maintain all books and records with respect to the
Fund's securities transactions; (v) supply the Trust and
its Board of Trustees with reports and statistical data
as requested; and (vi) prepare a quarterly broker
security transaction summary and monthly security
transaction listing for the Fund.
(c) In the performance of its duties
under this Agreement, the Adviser shall at all times
conform to: (i) the provisions of the 1940 Act and of any
rules or regulations in force thereunder; (ii) any other
applicable provision of law; (iii) the provisions of the
Declaration of Trust and By-Laws of the Trust, as such
documents are amended from time to time; (iv) the
investment objective and policies of the Fund as set
forth in its Registration Statement on Form N-1A (File
No. 33-71980); and (v) any policies and determinations of
the Board of Trustees of the Trust.
(d) The Adviser will bear all costs and
expenses of its officers and employees and any overhead
incurred in connection with its duties hereunder, and
shall bear the costs of any salaries or trustees fees of
any officers or Trustees of the Trust who are affiliated
persons (as defined in the 1940 Act) of the Adviser,
except that the Trustees of the Trust may approve
reimbursement to the Adviser of the pro rata portion of
the salaries, bonuses, health insurance, retirement
benefits and all similar employment costs for the time
spent on Fund operations (other than the provision of
investment advice) of all personnel employed by the
Adviser who devote substantial time to Fund operations or
the operations of other investment companies advised by
the Adviser.
(e) The Adviser shall not be liable for
any act or omission or for any loss sustained by the Fund
in connection with the matters to which this Agreement
relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this
Agreement.
(f) The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless
otherwise expressly provided or authorized, shall have no
authority to act for or represent the Trust or the Fund
in any way or otherwise be deemed as agent of the Trust
or the Fund.
(g) Nothing in this Agreement shall
prevent the Adviser or any officer, employee or other
affiliate thereof from acting as investment adviser for
any other person, firm or corporation, or from engaging
in any other lawful activity, and shall not in any way
limit or restrict the Adviser or any of its officers,
employees or agents from buying, selling or trading any
securities for its or their own accounts or for the
accounts of others for whom it or they may be acting;
provided, however, that the Adviser will undertake no
activities which, in its judgment, will adversely affect
the performance of its obligations under this Agreement.
(h) In compliance with the requirements
of Rule 31a-3 under the 1940 Act, the Adviser hereby
agrees that all records which it maintains for the Fund
are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon
the Trust's request. The Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under
the 1940 Act the records required to be maintained by
Rule 31a-1 under the 1940 Act.
3. Portfolio Transaction and Brokerage
The Adviser is authorized, for the purchase and
sale of the Fund's portfolio securities, to employ such
securities brokers and dealers as may, in the judgment of
the Adviser, implement the policy of the Fund to obtain
the best net results taking into account such factors as
price, including dealer spread, the size, type and
difficulty of the transaction involved, the firm's
general execution and operational facilities and the
firm's risk in positioning the securities involved.
Consistent with this policy, the Adviser is authorized to
direct the execution of the Fund's portfolio transactions
to brokers and dealers furnishing statistical information
or research deemed by the Adviser to be useful or
valuable to the performance of its investment advisory
functions for the Fund. In no instance, however, will
portfolio securities be purchased from or sold to the
Adviser, the Fund's principal underwriter, or any
affiliated person of either the Trust, the Adviser, or
the principal underwriter, acting as principal in the
transaction, except to the extent permitted by the
Securities and Exchange Commission.
4. Compensation of the Adviser
(a) The Fund agrees to pay to the Adviser
and the Adviser agrees to accept as compensation for
services and facilities described herein, a fee computed
and payable monthly in an amount equal to an annualized
rate of .15% of the Fund's daily net assets (which for
purposes of determining such fee shall mean the average
daily value of the Fund (as determined from time to time
pursuant to resolutions of the Trustees) minus the sum of
liabilities). The net asset value of the Fund shall be
calculated as of 4:00 P.M. Eastern time or as of such
other time or times as the Trustees may determine in
accordance with the provisions of applicable law and of
the Declaration of Trust and By-Laws of the Trust and
with resolutions of the Trustees as from time to time in
force.
(b) In addition to the fee of the
Adviser, the Fund (or ALPS Mutual Funds Services, Inc.
("ALPS"), pursuant to the Amended and Restated
Administration Agreement dated as of February 28, 1994 by
and between the Fund and ALPS and various related
agreements) shall assume and pay any expenses for
services rendered by a custodian for the safekeeping of
the Fund's securities or other property, for keeping its
books of account, for any other charges of the custodian
and for calculating the net asset value of the Fund as
provided above. The Adviser shall not be required to
pay, and the Fund (or ALPS, as the case may be) shall
assume and pay, the charges and expenses of its
operations, including: (i) compensation of those non-
interested persons of the Adviser; (ii) charges and
expenses of independent accountants, of legal counsel and
of any transfer or dividend disbursing agent; (iii) costs
of acquiring and disposing of portfolio securities; (iv)
costs on obligations incurred by the Fund; (v) costs of
membership dues in the Investment Company Institute or
any similar organization; (vi) costs of reports and
notices to stockholders; (vii) costs of registering
shares of the Fund under the federal securities laws;
(viii) miscellaneous expenses; and (ix) all taxes and
fees to federal, state or other governmental agencies on
account of the registration of securities issued by the
Fund, filing of Trust documents or otherwise. The Fund
shall not pay or incur any obligation for any management
or administrative expenses for which the Fund intends to
seek reimbursement from the Adviser without first
obtaining the written approval of the Adviser.
(c) If the expenses borne by the Fund in
any fiscal year exceed the applicable expense limitations
imposed by the securities regulations of any state in
which the Fund's shares are registered or qualified for
sale to the public, the Adviser (or ALPS, as the case may
be) shall reimburse the Fund for any such excess to the
extent that said securities regulations so require. Such
expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
5. Interested Persons
Subject to applicable statutes and regulations,
it is understood that Trustees, officers, shareholders
and agents of the Trust are or may be interested in the
Adviser as directors, officers, shareholders and agents
or otherwise and that the directors, officers,
shareholders and agents of the Adviser may be interested
in the Trust as Trustees, officers, shareholders, agents
or otherwise.
6. Liability
The Adviser shall not be liable for any error
of judgment or of law, or for any loss suffered by the
Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and
duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
7. Indemnity
(a) The Fund hereby agrees to indemnify
the Adviser and each of the Adviser's directors,
officers, employees, agents, associates and controlling
persons and the directors, officers, employees and agents
thereof (including any individual who serves at the
Adviser's request as director, officer, partner or the
like of another corporation) (each such person being an
"indemnitee") against any liabilities and expenses
arising out of the Adviser's relationship to the Fund,
including amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees
(all as provided in accordance with applicable state law)
reasonably incurred by such indemnitee in connection with
the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court
or administrative or investigative body in which he may
be or may have been involved as a party or otherwise or
with which he may be or may have been threatened, while
acting in any capacity set forth above in this Section 7
or thereafter by reason of his having acted in any such
capacity, except with respect to any matter as to which
he shall have been adjudicated not to have acted in good
faith in the reasonable belief that his action was in the
best interest of the Fund and, furthermore, in the case
of any criminal proceeding, so long as he had no
reasonable cause to believe that the conduct was
unlawful; provided, however, that (i) no indemnitee shall
be indemnified hereunder against any liability to the
Fund or its shareholders for any expense of such
indemnitee arising by reason of (A) willful misfeasance,
(B) bad faith, (C) gross negligence or (D) reckless
disregard of the duties involved in the conduct of his
position (the conduct referred to in such clauses (A)
through (D) being sometimes referred to herein as
"disabling conduct"); (ii) as to any matter disposed of
by settlement or a compromise payment by such indemnitee,
pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other
expenses shall be provided unless there has been a
determination that such settlement or compromise is in
the best interests of the Fund and that such indemnitee
appears to have acted in good faith in the reasonable
belief that his action was in the best interest of the
Fund and did not involve disabling conduct by such
indemnitee; and (iii) with respect to any action, suit or
other proceeding voluntarily prosecuted by any indemnitee
as plaintiff, indemnification shall be mandatory only if
the prosecution of such action, suit or other proceeding
by such indemnitee was authorized by a majority of the
Trustees of the Trust.
(b) The Fund shall make advance payments
in connection with the expenses of defending any action
with respect to which indemnification might be sought
hereunder if the Fund receives a written affirmation of
the indemnitee's good faith belief that the standard of
conduct necessary for indemnification has been met and a
written undertaking to reimburse the Fund, unless it is
subsequently determined that he is entitled to such
indemnification and if the Trustees of the Trust
determine that the facts then known to them would not
preclude indemnification. In addition, at least one of
the following conditions must be met: (i) the indemnitee
shall provide a security for his undertaking, (ii) the
Fund shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of a quorum
consisting of Trustees of the Trust who are neither
"interested persons" of the Trust (as defined in Section
2(a) (19) of the 1940 Act) nor parties to the proceeding
("Disinterested Non-Party Trustees") or an independent
legal counsel in a written opinion shall determine, based
on a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe
that the indemnitee ultimately will be found entitled to
indemnification.
(c) All determinations with respect to
indemnification hereunder shall be made (i) by a final
decision on the merits by a court or other body before
whom the proceeding was brought that such indemnitee is
not liable by reason of disabling conduct, or (ii) in the
absence of such a decision, by (A) a majority vote of a
quorum of the Disinterested Non-Party Trustees of the
Trust, or (B) if such a quorum is not obtainable or even
if obtainable if a majority vote of such quorum so
directs, independent legal counsel in a written opinion.
All determinations that advance payments in connection
with the expense of defending any proceeding shall be
authorized and shall be made in accordance with the
immediately preceding clause (ii) above.
The rights accruing to any indemnitee under
these provisions shall not exclude any other right to
which he may be lawfully entitled.
8. Duration and Termination
(a) This Agreement shall become effective
on the date hereof and shall remain in full force until
the second anniversary of the date hereof unless sooner
terminated as hereinafter provided. This Agreement shall
continue in effect from year to year thereafter, but only
so long as such continuation is specifically approved at
least annually in accordance with the requirements of the
1940 Act, as amended.
(b) This Agreement shall be submitted to
the initial sole shareholder of the Fund for approval at
the first meeting of the sole shareholder and shall
automatically terminate if not approved by the initial
sole shareholder at such meeting. This Agreement shall
automatically terminate in the event of its assignment.
This Agreement may be terminated by the Adviser at any
time without penalty upon giving the Fund sixty days
written notice (which notice may be waived by the Fund)
and may be terminated by the Fund at any time without
penalty upon giving the Adviser sixty days notice (which
notice may be waived by the Adviser), provided that such
termination by the Fund shall be directed or approved by
the vote of a majority of the Trustees of the Trust in
office at the time or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the Fund's
outstanding voting shares together as a single class.
This Agreement may be terminated at any time without the
payment of any penalty and without advance notice by the
Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund in the event that it shall
have been established by a court of competent
jurisdiction that the Adviser or any officer or director
of the Adviser has taken any action which results in a
breach of the covenants of the Adviser set forth herein.
9. Amendments and Waivers
No provision of this Agreement may be changed,
waived, discharged or terminated, except by an instrument
in writing signed by the party against which enforcement
of the change, waiver, discharge or termination is
sought. No substantive amendment of this Agreement shall
be effective as to the Fund until approved by vote of a
majority of the outstanding voting securities of the
Fund.
10. Notices
Any notice under this Agreement shall be in
writing to the other party at such address as the other
party may designate from time to time for the receipt of
such notice and shall be deemed to be received on the
earlier of the date actually received or on the fourth
day after the postmark if such notice is mailed first
class postage prepaid.
11. Severability
If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule
or otherwise, the remainder shall not be thereby
affected.
12. Governing Law
This Agreement shall be construed in accordance
with the laws of the State of Illinois for contracts to
be performed entirely therein without reference to choice
of law principles thereof and in accordance with the
applicable provisions of the 1940 Act.
13. Use of Name "Duff & Phelps"
Pursuant to an agreement between the Adviser
and Duff & Phelps Corporation, on behalf of Duff & Phelps
Corporation the Adviser hereby consents to the use by the
Fund of the identifying words or names "Duff & Phelps" in
the name of the Fund. Such consent is conditioned upon
the employment of the Adviser, its successors or any
affiliate thereof, as investment adviser. If at any time
the Fund ceases to employ the Adviser, any affiliate or
successor as investment adviser or distributor of the
Fund, the Adviser may require the Fund to cease using the
words or name "Duff & Phelps" in the name of the Fund as
promptly as practicable. As between the Fund and the
Adviser, the Adviser (on behalf of Duff & Phelps
Corporation) retains the right to control the use of the
name of the Fund insofar as such name contains "Duff &
Phelps" or "D&P". The identifying words or names "Duff &
Phelps" or "D&P" may be used from time to time in other
connections and for other purposes by the Adviser or
affiliated entities.
14. Liability of Shareholders and Trustees
The Trust's Declaration of Trust is on file
with the Secretary of State of the Commonwealth of
Massachusetts. This Agreement has been made by and on
behalf of the Fund and has been executed by an officer of
the Fund in such capacity and not individually. The
obligations of this Agreement are not binding upon the
Trustees or the shareholders of the Trust (including
without limitation shareholders of the Fund)
individually, but are binding only upon the assets and
property of the Fund. The shareholders of the Trust
(including without limitation shareholders of the Fund)
shall not be personally liable for any obligations or
liabilities of the Trust, any portfolio or sub-fund of
the Trust or any series of shares of any fund offered or
to be offered by the Trust.
IN WITNESS WHEREOF, the parties hereto have
caused this Investment Advisory Agreement to be executed
by their duly authorized officers and their respective
seals to be hereunto affixed, all as of the day and the
year first above written.
DUFF & PHELPS
MUTUAL FUNDS
on behalf of Duff & Phelps
Enhanced Reserves Fund
[SEAL]
By:
Name:
Title:
DUFF & PHELPS INVESTMENT
MANAGEMENT CO.
[SEAL]
By:
Name:
Title:
EXHIBIT (5)(b)(i)
AMENDED AND RESTATED
SERVICE AGREEMENT
DUFF & PHELPS MUTUAL FUNDS, registered under
the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end diversified management investment
company (the "Trust") on behalf of its portfolio, DUFF &
PHELPS ENHANCED RESERVES FUND (the "Fund"), DUFF & PHELPS
INVESTMENT MANAGEMENT CO., an Illinois corporation
registered under the Investment Advisers Act of 1940, as
amended, as an investment adviser (the "Adviser") and
DUFF & PHELPS CORPORATION, a Delaware corporation ("Duff
& Phelps"), agree that:
1. Personnel and Facilities
The Adviser shall have the right to use, and
Duff & Phelps shall make available for the use of the
Adviser: (a) statistical and other factual information,
advice regarding economic factors and trends or advice as
to occasional transactions in specific securities and
shall have access to such part-time services of employees
of Duff & Phelps engaged in investment research and
analysis, and such services of administrative and other
employees of Duff & Phelps, for a period to be agreed
upon by the Adviser and Duff & Phelps; (b) such
administrative, clerical, stenographic and other support
services and office supplies and equipment, as may in
each case be reasonably required by the Adviser in the
performance of its obligations as investment adviser to
the Fund under its Investment Advisory Agreement with the
Fund and any agreement amending or superseding such
agreement; and (c) such office space as is reasonably
needed by the Adviser in the performance of its
obligations as investment adviser to the Fund.
2. Availability of Information
In performing services for the Adviser under
this agreement, the employees of Duff & Phelps may, to
the full extent that they deem appropriate, have access
to and utilize statistical and economic data, investment
research and reports and other information prepared for
or contained in the files of Duff & Phelps that are
relevant to making investment decisions within the
investment objective of the Fund, and may make such
information available to the Adviser.
3. Responsibility; Standard of Care
Employees of Duff & Phelps performing services
for the Adviser pursuant hereto shall report and be
responsible solely to the officers and directors of the
Adviser or persons designated by them. Duff & Phelps
shall not have any responsibility for investment
recommendations and decisions of the Adviser based upon
information or advice given or obtained by or through
such employees of Duff & Phelps. Duff & Phelps shall not
be liable to the Fund or its shareholders for any loss
suffered by the Fund or its shareholders from or as a
consequence of any act or omission of Duff & Phelps or of
any of the directors, officers, employees or agents of
Duff & Phelps, in connection with or pursuant to this
Agreement, except by reason of willful misfeasance, bad
faith or gross negligence on the part of Duff & Phelps in
the performance of its duties or by reason of reckless
disregard by Duff & Phelps of its obligation and duties
under this Agreement. The obligation of performance of
the Investment Advisory Agreement between the Adviser and
the Fund is solely that of the Adviser, for which Duff &
Phelps assumes no responsibility except as otherwise
expressly provided herein.
4. Reimbursement of Expenses
In consideration of the services to be rendered
and the facilities to be provided to the Adviser by Duff
& Phelps and its employees pursuant to this Agreement,
the Adviser agrees to reimburse Duff & Phelps for such
costs, direct and indirect, as may be fairly attributable
to the services performed and the facilities provided for
the Adviser. Such costs shall include, but shall not be
limited to, an appropriate portion of salaries, employee
benefits, general overhead expense, and supplies and
equipment, and a charge in the nature of rent for the
cost of space in offices of Duff & Phelps. As to a fair
basis for allocating or apportioning costs, such basis
shall be fixed by the independent public accountants for
the Fund.
5. Duration and Termination
(a) This Agreement shall become effective on
the date hereof and shall remain in full force unless
terminated as hereinafter provided.
(b) This Agreement shall automatically
terminate in the event of its assignment unless a
majority of the board of trustees (the "Board") including
a majority of the Board's trustees who are not interested
persons of the Adviser, as that term is defined in the
1940 Act, approves the continuation of this Agreement.
This Agreement may be terminated by the Adviser or Duff &
Phelps at any time without penalty upon giving the Fund
and such other party sixty (60) days written notice
(which notice may be waived by the Fund) and may be
terminated by the Fund at any time without penalty upon
giving the Adviser and Duff & Phelps sixty (60) days
notice (which notice may be waived by the Adviser),
provided that such termination by the Fund shall be
directed or approved by the vote of a majority of the
Trustees of the Trust in office at the time or by the
vote of the holders of a "majority" (as defined in the
1940 Act) of the Fund's shares. This Agreement may be
terminated at any time without the payment of any penalty
and without advance notice by the Trustees of the Trust
or by vote of a majority of the outstanding shares of the
Fund in the event that it shall have been established by
a court of competent jurisdiction that the Adviser or
Duff & Phelps or any officer or director of the Adviser
or Duff & Phelps has taken any action which results in a
breach of the covenants of the Adviser or Duff & Phelps
set forth herein.
6. Notices
Any notice under this Agreement shall be in
writing to the other party at such address as the other
party may designate from time to time for the receipt of
such notice and shall be deemed to be received on the
earlier of the date actually received or on the fourth
day after the postmark if such notice is mailed first
class postage prepaid.
7. Severability
If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule
or otherwise, the remainder shall not be thereby
affected.
8. Governing Law
This Agreement shall be construed in accordance
with the laws of the State of New York for contracts to
be performed entirely therein without reference to choice
of law principles thereof and in accordance with the
applicable provisions of the 1940 Act.
9. Liability of Shareholders and Trustees
The Trust's Declaration of Trust is on file
with the Secretary of State of the Commonwealth of
Massachusetts. This Agreement has been made by the Trust
on behalf of the Fund and has been executed by an officer
of the Fund in such capacity and not individually. The
obligations of this Agreement are not binding upon the
Trustees of the Trust or the shareholders of the Trust
(including without limitation shareholders of the Fund)
individually, but are binding only upon the assets and
property of the Fund. The shareholders of the Trust
(including without limitation shareholders of the Fund)
shall not be personally liable for any obligations or
liabilities of the Fund, any portfolio or sub-fund of the
Trust or any series of shares of any fund offered or to
be offered by the Trust.
IN WITNESS WHEREOF, the parties hereto have
caused this Service Agreement to be executed by their
officers designated below as of July 12, 1995.
DUFF & PHELPS MUTUAL FUNDS,
on behalf of its portfolio
Duff & Phelps Enhanced
Reserves Fund
By: __________________________
Name:
Title:
DUFF & PHELPS INVESTMENT
MANAGEMENT CO.
By: __________________________
Name:
Title:
DUFF & PHELPS CORPORATION
By: __________________________
Name:
Title:
EXHIBIT 11(a)
[Deloitte & Touche LLP Letterhead]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 7 to
the Registration Statement No. 33-71980 of our report dated
January 19, 1996 of Duff & Phelps Mutual Funds appearing in the
Statement of Additional Information, which is a part of such
Registration Statement, and to the reference to us under the
headings "Financial Highlights" appearing in the Prospectus and
"Auditors" appearing in the Statement of Additional Information
which are a part of such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
April 26, 1996
EXHIBIT 16
SEC YIELD CALCULATION
YIELD FORMULA
YIELD = 2[((A-B/C*D)+1) 6-1]
A = DIVIDEND AND INTEREST INCOME
B = EXPENSES ACCRUED FOR THE PERIOD
C = AVERAGE DAILY NUMBER OF SHARES
DURING THE PERIOD THAT WERE ENTITLED TO DIVIDENDS
D = MAXIMUM OFFERING PRICE PER SHARE ON THE LAST DAY OF THE
PERIOD
As of December 31, 1995:
YIELD = 5.56%
A 691,521.47
B 40,030.05
C 14,104,058.944
D 10.08
AVERAGE ANNUAL TOTAL RETURN
[(ERV/p) 1/n-1)
ERV= Ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
p = hypothetical initial payment of $1,000
n = period covered by the computation, expressed in
terms of years
For the Fiscal Year Ended December 31, 1995:
ERV = 1,100.11
p = 1,020.52
n = 1.00
From Commencement of Investment Operations to December 31, 1995:
ERV = 1,100.11
p = 1,000.00
n = 1.50
EXHIBIT 19
DUFF & PHELPS MUTUAL FUNDS
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose name
appears below constitutes and appoints Calvin J. Pedersen and Thomas
N. Steenburg, and each of them, his true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution, for him
and in their name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to the
Registration Statement of Duff and Phelpd Mutual Funds and to file the
same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or
any of them or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
This Power of Attorney may be executed in multiple
counterparts, each of which shall be deemed an original, but which
taken together shall constitute one instrument.
Signature Title Date
/s/ Calvin J. Pedersen Chairman, Trustee, December 20, 1995
______________________ President and Chief
Calvin J. Pedersen Executive Officer
/s/ E. Virgil Conway Trustee December 21, 1995
______________________
E. Virgil Conway
/s/ William W. Crawford Trustee December 20, 1995
_______________________
William W. Crawford
/s/ William N. Georgeson Trustee December 20, 1995
________________________
William N. Georgeson
/s/ Everett L. Morris Trustee December 20, 1995
________________________
Everett L. Morris
/s/ Richard A. Pavia Trustee December 20, 1995
________________________
Richard A. Pavia
/s/ Mark A. Pougnet Treasurer and Chief December 20, 1995
_______________________ Financial Officer
Mark A. Pougnet
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000915217
<NAME> DUFF & PHELPS ENHANCED RESERVES FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 134,385,292
<INVESTMENTS-AT-VALUE> 135,533,181
<RECEIVABLES> 1,653,447
<ASSETS-OTHER> 169,689
<OTHER-ITEMS-ASSETS> 1,621
<TOTAL-ASSETS> 137,357,938
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 977,705
<TOTAL-LIABILITIES> 977,705
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134,937,709
<SHARES-COMMON-STOCK> 13,529,224
<SHARES-COMMON-PRIOR> 8,506,341
<ACCUMULATED-NII-CURRENT> 532
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 294,103
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,147,889
<NET-ASSETS> 136,380,233
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,693,000
<OTHER-INCOME> 0
<EXPENSES-NET> (427,459)
<NET-INVESTMENT-INCOME> 7,265,541
<REALIZED-GAINS-CURRENT> 586,169
<APPREC-INCREASE-CURRENT> 1,409,431
<NET-CHANGE-FROM-OPS> 9,261,141
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,264,990)
<DISTRIBUTIONS-OF-GAINS> (216,607)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,673,071
<NUMBER-OF-SHARES-REDEEMED> (30,358,450)
<SHARES-REINVESTED> 708,262
<NET-CHANGE-IN-ASSETS> 51,819,618
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (75,459)
<OVERDISTRIB-NII-PRIOR> (19)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 183,854
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511,192
<AVERAGE-NET-ASSETS> 122,519,454
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .16
<PER-SHARE-DIVIDEND> (.60)
<PER-SHARE-DISTRIBUTIONS> (.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.08
<EXPENSE-RATIO> .42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
